I've received quite a few questions about the CAGR lately, so I thought I'd share a simple explanation of this financial concept that we should all understand.

So, CAGR def — it's the compound annual growth rate. Basically, it's a tool to measure how your investments have truly performed over a given period. Contrary to what you might think, it's not just a simple average. The interesting part is that it accounts for the effect of compounding — in other words, your money earning interest, and that interest earning more interest in turn.

Why is it useful? Because it gives you a clear and comparable picture of your investments. If you want to know which of your investments has really been the best, CAGR shows it to you without getting lost in the details.

How does it work? The formula is simple: you divide the final value by the initial value, raise the result to the power of (1 divided by the number of years), then subtract 1. Multiply by 100 and you have your percentage.

The key point to remember: CAGR is not a real rate of return. It's more of a representation, a number that shows the average rate at which your investment should have grown each year if everything had proceeded smoothly and you had reinvested your gains.

It's truly the essential tool if you want to build a serious long-term investment strategy. With this, you can compare your investments objectively and make better-informed decisions.