InvestmentFinancial Glossary
CAGR (Compound Annual Growth Rate)
Definition
The annualized rate of return that smooths out the growth of an investment over a given period, assuming profits were reinvested at the end of each year. CAGR is calculated as (Ending Value / Beginning Value)^(1/n) - 1, where n is the number of years.
Why It Matters
CAGR gives you a single, comparable growth rate that strips out year-to-year volatility. It is the standard way to compare investment returns across different asset classes and time periods. However, it does not capture the risk or drawdowns experienced along the way.