1. What is CAGR?

The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

2. How Does the Calculator Work?

The calculator uses the CAGR formula:

Where:

• \( End \) — Ending value of investment
• \( Begin \) — Beginning value of investment
• \( n \) — Number of years

Explanation: The formula calculates the smoothed annualized gain of an investment over a period, assuming the investment grows at a steady rate each year.

3. Importance of CAGR Calculation

Details: CAGR is useful for comparing the historical performance of different investments or for projecting future values based on past performance. It's commonly used for stocks, mutual funds, and other investments.

4. Using the Calculator

Tips: Enter the beginning and ending values in currency units, and the time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and average return?
A: CAGR accounts for compounding effect while simple average return doesn't. CAGR provides a smoother annual growth rate.

Q2: What are good CAGR values for stocks?
A: A CAGR of 8-12% is considered good for stocks over long periods (10+ years), though this varies by market conditions.

Q3: Can CAGR be negative?
A: Yes, if the ending value is less than the beginning value, CAGR will be negative, indicating a loss over the period.

Q4: What are limitations of CAGR?
A: CAGR doesn't account for volatility or risk, and assumes smooth growth which rarely happens in reality.

Q5: How is CAGR different from annualized return?
A: They're similar concepts, but CAGR specifically refers to the compound growth rate over multiple years.