CAGR, also known as Compound Annual Growth is the yearly calculation of your investment growth over a specific time period. Not only does it tell you the rate of returns you have earned in your investments annually but is also considered to be an extremely useful method for all investors as it provides you with an accurate understanding of investment’s growth, decline & how it happens at all times. To know more about the CAGR calculator and how it works, keep reading this post.
What Is The Formula Used to Calculate?
The formula for CAGR calculation is – CAGR = (FV / PV) 1 / n – 1
Where PV stands for present value, FV stands for Future value and n stands for number of years.
The following steps will help you to understand the calculation behind CAGR of an investment:
- Firstly, the value at the end of the period of your investment needs to be divided by the initial value of the investment at the beginning of the specific time period.
- Next, the result needs to be raised by an exponent of one and divided by the number of years.
- Then, the subsequent result needs to be subtracted by one.
- Lastly, convert the result into percentage by multiplying it with 100.
What Are The Advantages of the CAGR Calculator?
Identify potential of Investment
The best part about CAGR calculators is that they help understand the growth and potential of your investment over a period of time. CAGR gives you the perfect indication of how much your money will grow. CAGRs do an excellent job of helping you understand how your money is growing over a specific time period.
Compare Investment Products
CAGR can help you draw a comparison on various investment products in an accurate manner instead of absolute returns. The CAGR calculator also comes in quite handy and is also the best tool for investment comparisons.
We often wonder who will give us an assessment of how our money works. With a future value calculator, you can use many test cases in order to evaluate your returns in multiple scenarios.
CAGR calculators are also quite simple and easy to use. All you need to do is enter the first value, then you add the deal with the investment period you desire and the CAGR calculator will take care of all the rest of the payments.
CAGR online calculators also give you a comprehensive understanding of all your investments. You can calculate your investment gains and understand how you need to spend your money going forward. You may also use the calculator to understand the stock performance of your peers or even the whole industry and how it functions.
How can you use a future value calculator online?
- Add the amount you want to invest.
- Add the value of investments after a specific time period.
- Add the number of months or years you want to use the CAGR calculator.
CAGR is an extensively useful method that is used to calculate your investment rate of growth. It can also be used to evaluate previous returns or even estimate the returns of your future investments. But, do remember that the CAGR also works suitably for a few lumpsum investments. In the case of SIPs, you don’t have to take periodic investments into account as they can only be considered as final and initial calculation values. The CAGR calculator overall is an excellent tool that can help you analyze and comprehensively understand your investments.