Average return (CAGR — Compound Annual Growth Rate) is the constant annual growth rate that would produce the same result as actual investment growth over a period. Unlike simple average return, CAGR accounts for compounding and gives a more meaningful comparison.
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Pro Tip
CAGR does not show volatility. Two investments with the same CAGR can have very different risk profiles. A 20% gain followed by a 20% loss results in a −4% total return, not 0%.
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Did You Know?
The Rule of 72 is a quick CAGR mental math tool: divide 72 by the annual return to estimate years to double. At 10% CAGR: 72/10 = 7.2 years to double.
References
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