What it was worth at the beginning.
What it is worth now, or was worth at the end.
Steady annual rate from $10,000 to $20,000 over 10 years
7.2%
Growing from $10,000 to $20,000 over 10 years is the same as compounding at a steady 7.2% a year, every single year. That is what CAGR measures — not what actually happened along the way, which almost certainly moved around more than that.
- CAGR
- 7.2%
- Total growth
- 2.00×
- Total return over the period
- +100%
This is not a forecast — it is the smooth curve CAGR implies, drawn backwards from the answer. The real path from $10,000 to $20,000 almost certainly was not this smooth; CAGR only ever sees the two endpoints.
Why not just average the yearly returns?
Because the arithmetic average reads too high whenever a return varies from year to year, and it is not a small effect. Take a fund that rises 50% in year one, then falls 50% in year two. The arithmetic average of those two numbers is 0% — which reads as though nothing happened.
What actually happened to the money: $10,000 becomes $15,000 after the rise, then $7,500 after the fall — a 25% loss overall, not a wash. The steady annual rate that actually produces that outcome is -13.4%, not 0%. Averaging returns and compounding them are different operations, and only the second one describes what happened to the money.
Arithmetic on assumptions you chose, not a forecast and not advice.
InvestingLite →