CAGR: The Magic Formula for Evaluating Your Investments

If you have ever wondered, “Is my portfolio really growing?”, then CAGR (compound annual growth rate) is your answer.

What is this anyway?

Imagine that your investment rises not in a straight line, but in a wave-like manner — one year +50%, the next -20%, the third +15%. CAGR shows the average rate at which it would have grown from that point, if it had risen evenly each year. This is not a real figure, but a representative one — a nice way to condense all the fluctuations into one number.

Formula (don't be scared)

CAGR = (Final Value / Initial Value)^(1 / years) − 1

Example: you invested $1000 in Bitcoin 4 years ago, it is now worth $15000.

• Dividing: 15000 / 1000 = 15
• Raising to the power: 15^(1/4) ≈ 1.967
• Subtracting 1: 0.967
• × 100 = 96.7% per annum

Why is this important?

1. Comparison — it's easy to understand which investment performed better.
2. Reality — takes into account the reinvestment of profits
3. Planning — helps to assess long-term potential

For crypto investors, this is especially useful: if ETH showed a CAGR of +45% over 5 years, and an altcoin +300%, the difference is immediately apparent. The main thing to remember is that past performance does not guarantee future results.