Does this ever happen to you? It is problem so common that every 1 out of 5 people experience it (Swear, we didn’t make it up :P)
Jokes aside, it is actually confusing more often than not to understand whether the returns delivered by your investment are good, bad or average. The problem gets acute when your investment has been for a period that is more than one year because you are unaware of how much your investment made year-over-year.
So, what’s the solution?
While you are obviously aware of acronyms like bff, OMG, ROFL, LMAO and so on, let us quickly decode an absolutely essential acronym that would serve you well for the rest of your life. Yes, CAGR.
To be absolutely precise, CAGR is the best measure when you have to measure the growth of your investment or for that matter, any trend, when the time period is more than one year i.e. multiple periods.
So, how is CAGR calculated? It is a simple formula
[(End value – Start value)/Start value] ^(1/(End date – Start date)) -1 ] x 100
Well, it may look a little complex but to be honest, it is absolutely simple. So simple that, my 10 year old cousin just loves solving for CAGR. Want to see? Let us take numbers from the above meme
Quick tip: The reason I took 3 is because the investment stayed for 3 years (periods).
To clear dino’s confusion therefore, the above investment earned 25.99% per year on a compounding basis which when compared to any instrument is pretty awesome.
See, it is that easy! 2 minutes over and we are happy you got through till the end 🙂
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of any agency, organization, employer, or any company. Fintuned Co. LLP shall not be held responsible in any manner whatsover, for any decision/action taken by readers on the basis of the content mentioned in the article. Readers are requested to exercise their best judgement before taking any decision/action. Fintuned Co. LLP shall also not be held responsible for any copyright infringement committed by the author in the process of writing and/or publishing this article and in the event any such offence is found, cooperate with necessary authorities to take remedial action
Thank you Yuva members for organising such a fun and informative lecture. We enjoyed it a lot. Meeting and learning from Mihir Sir was really an amazing experience. And this is not only our feeling but all the students enjoyed his lecture very much and look forward to many such events.
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