The Compound Annual Growth Rate (CAGR) is a useful tool for determining how much money an investment will make over a specified period of time. By using it to project how much money an investment will make, investors can plan ahead and anticipate how their investments are performing over time. Accurately forecasting portfolio values allows investors to stay on track with planned investments and avoid running out of money prematurely. Investors can also use this calculation when deciding which investments to make or buy into— those with high expected returns will tend to have higher CAGRs than those with lower expected returns but lower costs or risks such as interest rates or risk premiums required for funding them. When selecting investments, it’s important to keep in mind what goals you wish them to achieve so you can accurately project how they’ll perform under various scenarios.The CAGR provides investors with a benchmark for gauging the performance of individual investments in the marketplace— just like sales figures do for companies in the sales field . High-performing investments will gain popularity among investors and attract more capital into its hands— thereby increasing its value even further . Conversely, low-performing investments will lose investor interest and eventually fail — thereby lowering their value even further . Keeping track of performing investments helps investors choose which ones are worth investing in at any given time based on their predicted future values.
