CAGR (Compound Annual Growth Rate)
Definition
The average annual growth rate of an investment over a specified period, assuming profits are reinvested. It smooths out year-to-year volatility to show you the consistent rate that would have produced the same result. It's the standard way to compare investment performance.
Why It Matters
CAGR cuts through noise. An investment that returns 30% one year and -10% the next sounds volatile, but its CAGR tells you the steady equivalent. It's the best apples-to-apples comparison between different investments over different time periods.
Example
You invested $10,000 and after 5 years have $16,105. The CAGR is 10%. That doesn't mean you earned 10% every year — one year might have been 25%, another -5%. But 10% annually would have produced the same $16,105.