What is CAGR, and why do I look at it so much

CAGR stands for compound annual growth rate, and it answers a simple question: if your investment had grown at one steady rate every year, what rate would that have been? It's the honest per-year return, because it bakes in compounding — the fact that returns this year build on the returns from all years before.

I lean on it heavily, because CAGR strips out volatile single years and shows an investor how much substance a strategy actually has.

Want your own number? Drop what you put in, what it's worth now, and how long you held it into the CAGR calculator — it does the maths for you.

Why CAGR beats the average return

A simple average ignores compounding. Take a stark case: up 50% one year, down 50% the next. The average return is zero — but you're left with 75 cents on the dollar, a CAGR of about −13.4% a year. A gentler example makes the everyday version clear: a +30% year followed by a −14% year averages 8%, yet compounds at only 5.7%. The bumpier the path, the wider the gap, and the average is always the more flattering of the two.

Why consistency is the whole game

Compounding only stacks up if the base keeps growing. And big swings keep knocking the base back down. Two strategies can post the same 8% average, but the steady one compounds at 8% while the volatile one compounds at 5.7% — and over decades that difference is enormous.

This is why any investor should care less about a spectacular year than about a rate that repeats: the snowball needs a hill it can roll down without hitting rocks. Steady and repeatable beats brilliant and erratic, almost every time.

How I use it

I evaluate strategies and indices by their CAGR, not by their best year or their advertised average.

My portfolio's live CAGR sits at the top of the performance page, plotted against the S&P 500.

The compound-interest calculator shows what that per-year rate can compound into over decades. A CAGR also keeps expectations honest: it gives you a guideline of what return rates were realistic with that strategy.

And the concept of a CAGR points straight at the next idea — that protecting your investment from big losses matters more than chasing extra points, which is its own subject.