Portfolio
CAGR
CAGR translates a multi-year gain into a single annualized figure, assuming steady compounding. It answers the question of what constant yearly return would produce the observed result.
Because it smooths out the bumps, CAGR makes it easy to compare investments with different holding periods or volatile paths. A jagged journey and a smooth one that end at the same place share the same CAGR.
The tradeoff is that CAGR hides volatility. Two investments with identical CAGRs can have very different risk profiles, so it is best read alongside measures like drawdown.
Example
An investment that grows from $10,000 to $20,000 over 10 years has a CAGR of about 7.2%.
CAGR — FAQ
What is CAGR?
The compound annual growth rate (CAGR) is the smoothed annual rate at which an investment would have grown each year to reach its final value from its starting value.
Can you give an example of CAGR?
An investment that grows from $10,000 to $20,000 over 10 years has a CAGR of about 7.2%.
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