Compounded Annual Growth Rate

The Compounded Annual Growth Rate, or CAGR, is a measure of an investment's annual growth rate over a period longer than one year, assuming the profits were reinvested at the end of each year. It provides a smoothed rate of return that describes the steady growth an investment would have needed to reach its final value from its initial value.

CAGR is the standard for comparing the performance of different assets, such as comparing a volatile cryptocurrency against a traditional bond fund. However, it does not reflect the volatility experienced during the period, as it only considers the start and end values.

Because of this, it can mask significant periods of drawdown and recovery. It is a vital tool for long-term fundamental analysis.

Traders use it to determine if their strategy is outperforming a simple buy-and-hold benchmark.