“Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.” – Albert Einstein
Today I’m sharing my favorite financial calculator with you – the “CAGR Calculator”. CAGR stands for Compounded Annual Growth Rate. Compounded Annual Growth Rate (or CAGR) shows how much a person’s investment grow in one year.
I started using a CAGR Calculator to track the performance of real estate and not stocks. Now I use it for anything and everything related to “Returns” like Stocks, Real Estate, Chit Funds, FDs, Insurance, Mutual Funds, etc. Previously, my favorite financial calculator used to be the Compound interest calculator. It demonstrated the Compound Interest’s magic.
- You invest in stocks for higher returns, right?
- And stock markets are for long term, right?
- But how do you measure your returns?
- For example, 3 years back, you bought Tata Steel for 300 and today you sold it for 375.
- That is, 25% returns in 3 years.
- Optically it looks good. Because its Average Rate of Return = 25/3=8.33.
- But I would say you earned below FD returns.
- Because, if you invested Rs. 300 in FD @ 7.50% for 3 years then you would have the same amount of money. That is, Rs. 375.
- That means, even after risking your money in the stock market… you haven’t even earned FD returns.
- So the financial tool that I used to calculate the real return is called CAGR calculator.
- CAGR stands for compounded annual growth rate.
- CAGR shows how much a person’s investment grew in one year.
- It is the average returns an investor has earned on the investments after one year.
- Actually, I ended up using a CAGR Calculator to track the performance of real estate and not stocks.
- Previously, my favorite financial calculator was Compound interest calculator.
- That is, its purpose is to demo the Compound Interest’s magic.
- So many tools are there for CAGR.
- My favorite is from easycalculation.com.
- So in Tata Steel’s case CAGR = 7.72%.
- As you can see, CAGR considers timeframe.
- 25% in 3 years is absolute return. And it’s the same even if it took 5 years or 10 years.
- As mentioned, I started using CAGR Calculator for real estate and it immediately became my favorite financial tool.
- Now I use it for anything and everything related to “Returns”.
- Whether it’s Stocks, Real Estate, Chit Funds, FDs, Insurance, Mutual Funds, etc.
- For e.g. You bought a land in 2000 for 10 lacs and sold it for 40 lacs today.
- You can do the same calc for any asset class. Like Gold, Stocks, Insurance, etc.
Video / Malayalam
I hope you have learned a thing or two from my new video. If so, do share my video with your friends and family on your social media channels!
Happy Investing/Trading! 🙂