CAGR smooths away year-to-year volatility: a portfolio that went +40% then −10% has the same CAGR as one that grew steadily at the computed rate.
Frequently asked questions
Why use CAGR instead of average return?
A simple average of yearly returns ignores compounding and can be misleading after a loss. CAGR is the constant rate that actually connects start to end value.
What is a good CAGR?
Context matters: the S&P 500 has averaged roughly 7–10% nominal over long runs. A CAGR above that is strong; below inflation, purchasing power shrank.