CAGR Calculator for Yearly Investment

CAGR Formula:

\[ CAGR = \left( \frac{\text{End Value}}{\text{Start Value}} \right)^{\frac{1}{\text{Years}}} - 1 \]

Compound Annual Growth Rate (CAGR):

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1. What is CAGR?

CAGR (Compound Annual Growth Rate) is the mean annual growth rate of an investment over a specified period of time 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:

\[ CAGR = \left( \frac{\text{End Value}}{\text{Start Value}} \right)^{\frac{1}{\text{Years}}} - 1 \]

Where:

End Value — Final value of the investment
Start Value — Initial value of the investment
Years — Number of years the investment was held

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

3. Importance of CAGR Calculation

Details: CAGR is widely used to compare the historical returns of different investments, assess investment performance, and make informed financial decisions. It provides a clearer picture of growth than simple average returns.

4. Using the Calculator

Tips: Enter the starting value and ending value of your investment in dollars, and the number of years the investment was held. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good CAGR percentage?
A: A "good" CAGR depends on the investment type and market conditions. Generally, 7-10% is considered good for stock investments, while higher returns may indicate higher risk.

Q2: How does CAGR differ from average annual return?
A: CAGR accounts for compounding effect, while average annual return simply averages yearly returns. CAGR provides a more accurate representation of growth over time.

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

Q4: What are the limitations of CAGR?
A: CAGR assumes smooth growth and doesn't account for volatility or intermediate cash flows. It's best used for comparing investments with similar risk profiles.

Q5: How is CAGR useful for investment planning?
A: CAGR helps investors understand historical performance, set realistic return expectations, and compare different investment opportunities on an equal basis.