CAGR (Compound Annual Growth Rate)
Definition
CAGR is the average annual growth rate of an investment over a specified period of time, assuming that the investment grows at a steady rate compounded annually. It smooths out the effects of volatility and provides a single growth rate that links the initial and final values.
Why It Matters to Investors
- Provides a clear measure of investment growth over multiple years
- Allows easy comparison between different investments or strategies
- Helps investors understand long-term performance without being misled by short-term fluctuations
The TiltFolio View
Both TiltFolio systems use CAGR as a key metric to evaluate the consistency and strength of their strategies' returns over time. While actual returns fluctuate year to year, CAGR offers a simple and intuitive way to communicate long-term growth potential to investors. It complements other risk-adjusted measures by showing how capital compounds when gains are reinvested. TiltFolio Adaptive's CAGR reflects its dynamic allocation approach, while TiltFolio Balanced's CAGR demonstrates the power of consistent diversification over time.
Real-World Application
• Comparing the long-term growth of TiltFolio versus the S&P 500 or a diversified portfolio
• Evaluating performance of mutual funds, ETFs, or individual stocks
• Assessing the impact of fees or taxes on investment growth over time