Answer Post

What is CAGR and why does it matter?

CAGR is the annualized growth rate that smooths total returns across years into one comparable number. It helps compare investments over different periods but does not show interim volatility.

Quick checklist

Always compare CAGR with risk, drawdowns, and holding period consistency.

  • Define your number inputs and assumptions.
  • Run at least 2 scenarios: conservative and optimistic.
  • Check inflation and tax impact where relevant.
  • Review every 6-12 months for course correction.

FAQ

Is CAGR same as average return?
No, CAGR is geometric growth, while average return is arithmetic and can mislead.

Can CAGR be negative?
Yes, if ending value is below starting value over the measured period.

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