What is CAGR?
The Compound Annual Growth Rate (CAGR) represents the average annual growth of your investments within a specific timeframe. It indicates the average yearly return on your investments. CAGR is valuable for investors as it precisely gauges the growth or decline of investments over time, offering a reliable measure of investment performance.
CAGR vs Absolute Return
Many individuals assess their investment gains in absolute figures. Absolute returns indicate the total earnings of an investment throughout its duration. Consider a hypothetical scenario: suppose you invested ₹20,000 in a mutual fund in 2015, and by 2020, the investment's value rose to ₹35,000.
In absolute terms, your investment showed a 75% profit over a five-year period. While this might seem impressive, it doesn't provide a complete picture. Essentially, it doesn't reveal the average annual return on your investment.
For investors, understanding the average yearly performance of their investments is crucial. This is where CAGR (Compound Annual Growth Rate) proves invaluable in providing a comprehensive view of investment performance.
How to use the CAGR Calculator: The CAGR Formula
Now that you have a fundamental understanding of Compound Annual Growth Rate (CAGR) and its significance, let's explore further and grasp the method for computing CAGR.
We'll commence with the CAGR formula. The formula for calculating investments' Compound Annual Growth Rate, or CAGR, is as follows:
CAGR = (Ending balance/beginning balance)1/n - 1
In this formula:
- Ending balance represents the investment's value at the end of the investment period.
- Beginning balance signifies the investment's initial value at the beginning of the investment period.
- n denotes the number of years for which you have made the investment.
How to use the Stack Wealth CAGR Calculator
This online CAGR calculator by Stack Wealth is a user-friendly online tool with a sleek and uncomplicated interface. This calculator efficiently delivers two significant types of investment results – Absolute Returns and Compound Annual Growth Rate (CAGR) based on user-provided inputs.
To utilize the Stack Wealth CAGR calculator, you only need to input three essential details:
- Total Investment: The overall amount you have invested.
- Final Maturity Value: The investment's value at maturity.
- Duration of Investment: The total number of years you remained invested.
Once you've entered this information, you can opt to view either the Absolute Returns or the Annual Returns (CAGR) of your investment. Click on the “Calculate” button to obtain your results promptly.
Benefits of an Online CAGR Calculator
Benefits of Using a CAGR Calculator:
- Precise Growth Evaluation: Evaluate the growth of your investments with precision for informed financial decisions.
- Time-Driven Analysis: Perform time-driven analysis to understand long-term investment performance and trends.
- Business and Investment Insight: Gain valuable insights into business and investment performance using CAGR calculations.
- Effective Comparison Tool: Use CAGR as an effective tool for comparing the growth rates of different investments or ventures.
- Informed Investment Decisions: Make well-informed investment decisions based on historical performance and potential growth indicated by CAGR calculations.
