How it works
CAGR smooths out the ups and downs of a holding period into a single steady annual compounding rate. It's especially useful for comparing investments with different time horizons on equal footing. Unlike a raw total return, CAGR accounts for time — so a 30% gain in one year and a 30% gain over ten years are no longer treated as equivalent.
FAQ
Q. How is CAGR different from a simple total return?
A. A simple return only shows the total move regardless of how long it took; CAGR spreads that move across the years it actually took to reach it.
Q. Does a high CAGR always mean a great investment?
A. Generally, yes — but CAGR alone doesn't show how volatile the ride was. Check standard deviation or max drawdown alongside it.