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CAGR
(Compound Annual Growth Rate)
CAGR (Compound Annual Growth Rate) calculates an investment's mean annual growth rate over time, smoothing volatility. For example, $100 growing to $195 in 3 years has a 25% CAGR (100*(1+0.25)^3=195).
CAGR is superior to average returns for multi-period analysis - a 50% loss requires 100% gain to break even. The S&P 500's 30-year CAGR is ~10% including dividends. VC funds target 25-30% CAGRs, while mature industries aim for 3-5%. CAGR helps compare ETFs, revenue growth, or ROI across different timeframes. However, it ignores risk and interim volatility - a 20% CAGR could result from steady growth or wild swings.
CAGR is superior to average returns for multi-period analysis - a 50% loss requires 100% gain to break even. The S&P 500's 30-year CAGR is ~10% including dividends. VC funds target 25-30% CAGRs, while mature industries aim for 3-5%. CAGR helps compare ETFs, revenue growth, or ROI across different timeframes. However, it ignores risk and interim volatility - a 20% CAGR could result from steady growth or wild swings.