What is CAGR? Why do investors need to know?

2025-11-06 11:09:20

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CAGR (The compound annual growth rate) is a tool to assess whether an investment is truly profitable or not. It calculates the average annual growth rate, taking into account compound interest.

Simple formula:

CAGR = (Final Value / Initial Value)^(1 / Number of Years) - 1

For example: If you invested 1000 USD in BTC three years ago, it is now worth 4000 USD. CAGR will be (4000/1000)^(1/3) - 1 = 58.74%/year.

Why use CAGR?

Many people only look at the overall profit of (300% in the above example) and forget that it occurs over 3 years. CAGR shows you how much it increases on average each year, which allows for a fair comparison with other investments.

It also helps you forecast the future: if Bitcoin continues to increase by 58.74% per year, what will it be at next year?

Note: CAGR is just a theoretical number, and in reality, it can fluctuate continuously. However, it helps you understand investment performance better in the long term.

#dyor #crypto

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