Cumulative Average Growth Rate (CAGR)

The cumulative average growth rate (CAGR) is a measure of the average growth rate of an investment over a specified period of time. It is calculated by taking the ratio of the final value of the investment to the initial value and raising it to the power of 1/n, where n is the number of years over which the investment was made. The CAGR is expressed as a percentage, and it represents the average annual growth rate of the investment over the period.

CAGR is a useful metric for evaluating the performance of an investment, as it takes into account the effect of compounding, which occurs when the returns on an investment are reinvested over time. It is often used to compare the performance of different investments or to evaluate the performance of an investment relative to a benchmark or market index.

However, it is important to note that CAGR does not reflect the actual fluctuations in the value of an investment over time, and it may not accurately represent the true return of an investment in cases where there are large variations in the investment's value over the period.