The Philosophers’ Legacy Portfolio has gained more than 21% per year the last three years at the time of making this post. We call that number the CAGR.
The CAGR or Compounded Annual Growth Rate is a useful measure of performance for any investment portfolio. The higher the better. The compounded rate is different from the simple rate, which will only divide the total gain by amount of years.
How do I calculate my CAGR when I know how much my portfolio has gained over a period?
For example, The Philosophers’ Legacy portfolio gained about 78% over the last three years. How do I calculate the compounded annual growth rate?
Do the following:
Go to https://cagrcalculator.net/ and make the following inputs:
Starting Investment Value: 100 (your basis will always be 100)
Ending Investment Value: 178 (100 + your percentage point gain)
No. of periods: 3
Hit Calculate and the restult will be shown.
In this example the CAGR was 21,19%. That’s the return the portfolio has gained per year at a compounded rate.
If I know the value of my holdings at the start and now, how do I calculate CAGR? For example I start with $100.000 and now after 4 years it is $131.123.
You do the following:
Go to https://cagrcalculator.net/ and make the following inputs.
Starting Investment Value: 100.000
Ending Investment Value: 131123
No. of periods: 4
Hit Calculate.
This example would have had a CAGR of 7,01%.
Notice that the simple growth rate would be about 7,74% (31,1% / 4). You see that you need a smaller CAGR to compound with every year to get to the end value.
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