📈 What CAGR Really Tells Us (And What It Doesn’t)
We hear the term CAGR all the time — in financial news, in discussions about companies, even casually in conversations about investments. Yet, despite its frequent use, the concept often remains unclear. So what exactly is CAGR, and why does it matter? 📖 Beyond the Textbook Formally, CAGR (Compound Annual Growth Rate) is defined as: “The geometric progression ratio that provides a constant rate of return over a time period.” While technically accurate, this definition hides more than it reveals. A more useful way to think about CAGR is this: It is the average annual rate at which an investment grows over time , assuming that the growth compounds. 💡 Understanding Through Intuition Imagine investing money that grows every year — not just on the original amount, but on the accumulated value. Over time, the growth compounds, and CAGR gives us a way to compress that entire journey into a single annual rate . It doesn’t describe what happened each year. It describes what...