Recently, I've been studying investment returns and noticed that many people still have a bit of confusion about the concept of CAGR. Actually, CAGR stands for Compound Annual Growth Rate, which is one of the most practical indicators for evaluating investment performance. I think it's worth understanding it thoroughly.

In simple terms, CAGR tells you how much an investment has grown on average each year over a specific period. It is not the actual annual return rate but a representative figure assuming your investment grows at the same rate every year and profits are reinvested at the end of each year. This calculated growth rate can more accurately reflect the actual performance of the investment.

The calculation method is actually quite simple. The formula is: CAGR = (Ending Value / Beginning Value) ^ (Number of Years) – 1. The specific steps are to divide the ending investment value by the beginning value, then take the result to the power of 1 divided by the number of years, and finally subtract 1 and multiply by 100 to convert to a percentage.

Why is this indicator so important? Because it allows you to see the growth trajectory of your investment with a single number. Compared to just looking at annual fluctuations, CAGR can eliminate the noise of short-term ups and downs and help you find the true growth trend. This is especially useful for long-term investment planning, and when comparing different investment options, CAGR becomes a measuring stick.

Whenever I evaluate crypto assets or other investments, I first calculate the CAGR to determine whether it's worth paying attention to. This indicator can indeed help you make more rational decisions instead of being driven by short-term market movements.