Calculating CAGR and Mutual Fund Performance for Long-Term Wealth Building
In the world of investing, there is a dangerous phenomenon known as the “Wealth Illusion.” Imagine an investor who boasts that their portfolio has grown by 100%. On the surface, doubling your money sounds like a resounding success. However, if that growth took 20 years to achieve, the investor has actually underperformed basic inflation-adjusted benchmarks. Without a standardized way to measure time and growth together, investors often find themselves chasing “hot” returns that offer very little substance over the long haul.
To build sustainable wealth, you must move beyond looking at “total gains” and start looking at the Compound Annual Growth Rate (CAGR). It is the most reliable yardstick for measuring the performance of mutual funds and individual portfolios over time. By smoothing out the volatile “peaks and valleys” of the stock market, CAGR provides the mathematical truth of how hard your money is actually working for you.