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Compound annual growth rate (CAGR) Calculator

CAGR Calculator: Measure Your Investment Growth | SBJ Global

CAGR Calculator: Measure Your Investment Growth

Quickly determine the Compound Annual Growth Rate (CAGR) of your investments with SBJ Global's calculator.

CAGR Calculator

Enter the initial value, final value, and the number of years to calculate CAGR.

Understanding Compound Annual Growth Rate (CAGR)

The Compound Annual Growth Rate (CAGR) represents the average annual growth rate of an investment over a specified period, assuming profits are reinvested during the term of the investment. CAGR is often used to assess the performance of investments and compare different opportunities.

Why is CAGR Important?

CAGR is a useful metric for:

  • Measuring Investment Performance: Provides a clear view of how an investment has grown annually.
  • Comparing Investments: Allows for easy comparison of returns on different investment types.
  • Assessing Growth Consistency: Helps determine the stability and consistency of an investment's growth.
  • Financial Planning: Aids in forecasting future returns and setting realistic financial goals.

How Our CAGR Calculator Works

Our calculator simplifies the process of determining CAGR. Here’s how to use it:

  1. Enter Initial Value: Input the value of the investment at the beginning of the period.
  2. Enter Final Value: Enter the value of the investment at the end of the period.
  3. Enter Number of Years: Specify the duration of the investment in years.
  4. Click Calculate: The calculator processes these inputs and displays the CAGR.

The CAGR Formula

The formula to calculate CAGR is:

CAGR = (Final Value / Initial Value)^(1 / Number of Years) - 1

Where:

  • Final Value is the investment's value at the end of the period.
  • Initial Value is the investment's value at the beginning of the period.
  • Number of Years is the duration of the investment in years.

The result is expressed as a decimal, which can be converted to a percentage by multiplying by 100.

Limitations of CAGR

While CAGR is a helpful metric, it has certain limitations:

  • Not a True Rate of Return: It does not represent the actual year-by-year returns, as it smooths out volatility.
  • Sensitive to Time Period: Different start and end dates can significantly impact the CAGR.
  • Ignores Volatility: It doesn’t reflect the risk associated with the investment, as it only shows average growth.

Using CAGR Effectively

To make the most of CAGR, consider the following:

  • Compare with Similar Investments: Use CAGR to compare investment options with similar risk profiles.
  • Consider Other Metrics: Look at other metrics like standard deviation to understand volatility.
  • Use Appropriate Time Frames: Analyze CAGR over multiple time periods to understand long-term trends.

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