Recently, while reviewing investment reports, I noticed that many people are still a bit unclear about the concept of CAGR. Actually, this indicator is really key for evaluating long-term investment performance, so today I want to talk about why.

Compound annual growth rate, or CAGR, simply put, is a way to clearly calculate how fast an investment has grown. But here’s the key point — it’s not just an average growth rate, but one that considers the effect of compounding. In other words, each year's gains are added to the principal and continue to generate returns, which is the power of compounding.

Why use CAGR instead of other methods? Because it provides a standardized way to compare different investments. Suppose you invest in several projects at the same time, some with high volatility, others stable; CAGR allows you to compare them with a single number, making it clear which investment truly performs better.

Calculating CAGR is actually quite simple: CAGR = (End Value / Start Value) ^ (1 / Number of Years) – 1. The specific steps are to divide the end value by the start value, then use exponentiation (1 divided by the number of investment years), and finally subtract 1 and multiply by 100 to convert to a percentage. Although the formula looks a bit intimidating, you just need to plug in the numbers to get the result.

More importantly, CAGR allows you to evaluate investments more rationally. It assumes a consistent growth rate each year, with profits reinvested at the end of the year, so you can see what would happen if this growth rate is maintained. This is especially useful for long-term investment planning because it helps identify which investments are truly creating value for you.

Honestly, many people get distracted by short-term ups and downs when investing, but with the CAGR tool, you can see through the surface and grasp the real growth trend. Whether it’s traditional assets or crypto assets, this indicator can help you make smarter decisions.