Two numbers and a stretch of time — what you put in, what it's worth now. CAGR turns that into one honest annual return, the figure you can actually compare across investments.
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Compound Annual Growth Rate — the single yearly rate at which your money would have grown if it compounded evenly, start to finish. It answers "what return did this actually earn per year?" once you strip out the ups and downs.
It's the honest way to compare two investments held for different lengths of time. A fund that doubled in 4 years (18.9% CAGR) beat one that doubled in 6 (12.2% CAGR), even though both "doubled".
One clean formula:
Where Start is what you invested, End is what it's worth now, and years is how long you held it. The result is a percentage — the smoothed annual rate.
CAGR is a straight line drawn between two points. Real returns zig-zag — a 14% CAGR might mean +40% one year and −20% the next. So CAGR is great for comparing and poor for expecting: don't assume next year delivers the CAGR.
Want to know whether a fund's CAGR is actually good for the risk it took? Talk to Archita — she'll read it in context.