I noticed that many people don't know how to properly evaluate how their investments have actually grown. Most only look at the percentage increase, but that's not entirely accurate, especially over longer periods of time.

This is where CAGR, or compound annual growth rate, comes into play. It is one of the best ways to determine whether your money has truly appreciated well. CAGR takes into account that your profit is reinvested each year and continues to grow. It's not just a simple average, but a truly precise indicator.

Practically speaking — CAGR shows you the average annual rate at which your investment would have grown if it grew at the same pace every year. It's like asking: if I started with a certain amount and ended with another, how much did I earn on average each year?

How is it calculated? The formula is simple: take the ending value of the investment, divide it by the starting value, raise it to the power of one divided by the number of years, and subtract one from the result. When you multiply that by 100, you get the percentage. Sounds complicated? In reality, it's not. Practically: divide the final price by the initial price, raise it to the exponent of one divided by the number of years, subtract one, and you’re done.

Why should you care? Because CAGR gives you a clearer picture of how your portfolio has developed. It helps you compare different investments and see which ones have yielded better returns. If you want to plan long-term how your money will perform, CAGR is exactly the metric you should follow.

It's a great tool mainly because it ignores short-term fluctuations and gives you a realistic view of long-term growth. When deciding where to invest next, you have real numbers, not just estimates.