InvestorQ : What is CAGR in stock market?

What is CAGR in stock market?

10 months ago
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The CAGR (Compound Annual Growth Rate) is not a true return rate, but rather it is a representational figure. It is basically a number that describes the rate at which an investment would have grown if it had grown with the same rate every year and the profits were reinvested at the end of each year. This helps in better comparison with returns from other investments. However, CAGR does not reflect investment risk.
To calculate CAGR of an investment:
Divide the value of an investment at the end of the period by its value at the beginning of that period.
Raise the result to an exponent of one divided by the number of years.
Subtract one from the subsequent result.
Assuming the total value of the initial investment is Rs. 100,000 and at the end of the 30th year your investment values Rs.20,00,000.
In this case, CAGR shall be calculated as:
CAGR = (20,00,000/100,000)1/30 – 1 = 10.51% (approx.)
The compound annual growth rate of 10.51% over the thirty-year investment period can help an investor compare alternatives for their capital or make forecasts of future values.
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10 months ago
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The CAGR is a mathematical formula that provides a "smoothed" rate of return. It is really a pro forma number that tells you what an investment yields on an annually compounded basis — indicating to investors what they really have at the end of the investment period.