Monthly CAGR Formula:
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The Monthly Compound Annual Growth Rate (CAGR) measures the mean annual growth rate of an investment over a specified time period of less than or equal to one year, expressed in monthly terms. It provides a smoothed annualized return figure.
The calculator uses the Monthly CAGR formula:
Where:
Explanation: The equation annualizes growth by raising the total return ratio to the power of (12/months) and subtracting 1.
Details: Monthly CAGR is particularly useful for comparing investments with different time horizons or evaluating short-term performance in annualized terms.
Tips: Enter ending and beginning values in USD, and the time period in months (1-12). All values must be positive numbers.
Q1: How is monthly CAGR different from regular CAGR?
A: Monthly CAGR annualizes returns from periods shorter than one year, while regular CAGR typically uses yearly periods.
Q2: What does a negative monthly CAGR indicate?
A: A negative value indicates an annualized loss over the measurement period.
Q3: Can I use this for periods longer than 12 months?
A: Yes, but the result will still be an annualized rate. For multi-year periods, standard CAGR may be more appropriate.
Q4: How does compounding frequency affect the result?
A: This calculation assumes continuous compounding. Different compounding frequencies would require a different formula.
Q5: Why annualize monthly returns?
A: Annualization allows comparison of returns across different time periods on a common basis.