Definition
Compound Annual Growth Rate (CAGR) is the rate of return required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period.
Related Services
CAGR is commonly used in financial planning, investment analysis, and portfolio management to gauge growth over time.
Problem and Application
In investment strategy, understanding CAGR helps clients assess long-term investment performance. However, without proper guidance, investors might rely on CAGR without recognizing its limitations, such as volatility or cash flow irregularities in certain assets.
Conclusion
CAGR provides an essential insight into investment growth, particularly for steady assets, making it a valuable metric for assessing and projecting financial goals over time.
