Demystifying Investment Returns: ROI vs CAGR
When investors evaluate historical performance across individual stocks, private equity, or real estate assets, looking solely at total return percentage can be deceptive. A 50% total gain achieved over 2 years represents extraordinary performance (22.5% CAGR), while a 50% gain over 15 years represents an annualized return under 2.75%, trailing historical inflation.
CAGR = [ (Final Value + Dividends) ÷ Initial Capital ]^(1 ÷ Years) - 1
