What Is CAGR?
CAGR (compound annual growth rate) smooths multi-year growth into one yearly rate—useful when comparing investments with different holding periods.
Formula
CAGR = (ending value ÷ beginning value)^(1 ÷ years) − 1
Worked example
$10,000 grows to $12,100 in 2 years: factor 1.21, CAGR ≈ √1.21 − 1 ≈ 10% per year.
When not to use CAGR
Short volatile windows or flows with big deposits/withdrawals need cash-weighted returns, not a single CAGR on endpoints alone.