{"id":6321,"date":"2022-02-24T20:35:35","date_gmt":"2022-02-24T15:05:35","guid":{"rendered":"https:\/\/aayushbhaskar.com\/?p=6321"},"modified":"2022-02-24T20:35:35","modified_gmt":"2022-02-24T15:05:35","slug":"cagr","status":"publish","type":"post","link":"https:\/\/aayushbhaskar.com\/cagr\/","title":{"rendered":"What is CAGR, How to Calculate & How it Differs from XIRR","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"
Have you ever wondered how to calculate the returns from your investments?<\/span><\/p>\n If so, this article is great news for you. You\u2019re going to learn a technique called CAGR. <\/span><\/p>\n This post will teach you everything you need to know about CAGR and how to use it in your financial calculations.\u00a0<\/span><\/p>\n Here\u2019s a quick rundown of what we\u2019ll cover next:<\/span><\/p>\n CAGR stands for \u201cCompound Annual Growth Rate\u201d and it can be calculated for almost anything that can go up or down in value over time. <\/span><\/p>\n CAGR can be used to describe multiple fields of study. However, it is primarily used in finance, economics, and demography.<\/span><\/p>\n The compound annual growth rate (CAGR) of an\u00a0<\/span>investment<\/span><\/strong>\u00a0is the mean annual growth rate of an investment over a specified period longer than one year.<\/span><\/p>\n In simple words, it shows you how much your investment has been earned each year for a given time interval. <\/span><\/p>\n A positive CAGR means that your investments increased, while a negative CAGR means your investments decreased.<\/span><\/p>\n You can calculate CAGR by using the following three parameters:<\/span><\/p>\n The mathematical formula for measuring CAGR is:<\/span><\/p>\n <\/p>\n For example, if the beginning value is Rs 1,000, and the end value is Rs 2,500 with an investment period of 5 years, the CAGR is calculated as follows:<\/span><\/p>\n CAGR = (2,500\/1,000)^(1\/5)-1 = 20.11%<\/span><\/p>\n Wait!<\/p>\n Don’t worry, you don’t have to calculate manually. I am here to make your life easy.<\/p>\n We have our very own online CAGR Calculator<\/a>. <\/strong><\/p>\n Just enter Values and you will get the CAGR in microseconds.<\/p>\n CAGR is one of the most reliable metrics to estimate the growth of your investment because it calculates compound interest. Unlike the absolute rate of returns, CAGR provides a more precise estimation.<\/span><\/p>\n Let us have a look at the pros and cons of CAGR:\u00a0<\/span><\/p>\n CAGR is a useful metric for many purposes, but it has some limitations that you should be aware of.\u00a0\u00a0<\/span><\/p>\n 1. CAGR doesn’t indicate market volatility:<\/span><\/strong><\/p>\n The most important limitation is that CAGR doesn’t tell you much about actual investment performance. <\/span><\/p>\n A single annualized return number doesn’t offer any sense of what’s going on underneath. <\/span><\/p>\n It can hide a lot of volatility in an investment or make an extremely volatile investment look less so.\u00a0<\/span><\/p>\nWhat is CAGR?<\/span><\/h2>\n
How to calculate CAGR?<\/span><\/h2>\n
\n
Pros and Cons of CAGR<\/span><\/h2>\n
Pros of CAGR:<\/span><\/h3>\n
\n
Cons of CAGR<\/span><\/h3>\n