Ensuring a thorough understanding of the real growth potential of your investment is a fundamental step towards a secured financial future. In the realm of financial literacy, CAGR stands out as a powerful financial tool that offers insight into the growth of investment over time.
Investors must retain a clear concept of CAGR and how it can be calculated efficiently with the use of calculators. Individuals using a trading app can get hold of this calculator in the app itself, and it offers a predictive analysis of the expected return against the inputs made by the investor. Let’s learn about the CAGR calculator in detail and how it proves beneficial in measuring the growth of investments.
What Is Meant By CAGR?
CAGR stands for Compound Annual Growth Rate, which serves as a financial metric used for measuring the annualized growth rate of investments over a particular time period. It takes into consideration the compounding effects, which are often ignored in simple average growth rates. CAGR takes into consideration the fact that returns earned on investmentt can be again reinvested for the generation of additional returns in subsequent years.
How Does CAGR Prove Useful?
CAGR proves particularly useful for evaluating the performance of investments that are expected to experience fluctuations in returns over the years. It offers a growth rate that is smoothed out and provides the real trajectory of growth of the particular investment. CAGR is usually expressed as a percentage. It is also used in comparing the growth rates of various investments, especially the ones entertaining a varied volatility level.
How Is CAGR Calculated With The Help Of A Calculator?
Innovative financial solutions have made the calculation process simpler and more accessible. One can make use of a dedicated CAGR calculator, which often comes with trading apps to calculate the CAGR of any investment. Here’s how one can calculate CAGR with the CAGR calculator:
The first step would be to open the calculator and enter the required values. The inputs typically include an initial investment value, final investment value and investment tenure.
Once all the inputs are provided correctly, press the calculate button displayed on the screen.
The calculator will display the final calculated result. If the result is shown in decimal, you need to convert it into percentages by multiplying it with 100.
For instance, if your initial investment value is 10,000 and the final value is 15000 over a period of 5 years, the CAGR may approximately show 0.0868 as decimal. You need to multiply it by 100 to get 8.68%, which is your actual CAGR percentage. This represents that the growth of your investment is 8.68% over a period of five years.
Conclusion:
Thus, to sum up, making use of a CAGR calculator proves helpful in streamlining the entire process and offers the investor accurate results without the requirement of indulging in complex formulas for manual calculations. It, therefore, offers a convenient tool for measuring the growth of investment and comparing various investment opportunities.
