CAGR (Compound Annual Growth Rate)
The average annual growth rate of an investment over a period longer than one year.
CAGR smooths out volatile annual returns into a single average rate. If an investment goes from $10,000 to $20,000 in 7 years, the CAGR is (20000/10000)^(1/7) - 1 = 10.4% per year. This does not mean the investment grew exactly 10.4% every year — it could have had years of 30% gains and 15% losses. CAGR is useful for comparing investments over the same time period. The S&P 500 CAGR since 1926 is approximately 10.5%.
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