uTrade AlgosWhile CAGR is a valuable tool for understanding investment growth, it’s important to recognise its limitations to ensure a well-rounded financial perspective.
You can calculate your CAGR easily using Share India’s CAGR Calculator here:
Limitations of CAGR:
- Volatility Masking: CAGR provides a smoothed average, obscuring the actual volatility and fluctuations experienced during the investment period. It doesn’t reflect the ups and downs along the way.
- Assumption of Constant Growth: CAGR assumes a consistent growth rate, which is rarely the case in real-world investments. Market conditions and investment performance can vary significantly year to year.
- Sensitivity to Time Period: The CAGR can vary significantly depending on the starting and ending points of the investment period. Choosing a particularly high or low starting or ending point can skew the results.
- Lack of Risk Consideration: CAGR doesn’t account for the risk associated with an investment. A higher CAGR doesn’t necessarily mean a better investment if it comes with significantly higher risk.
- External factors: CAGR does not account for external factors that effect investment returns such as inflation, and tax.
- It is retrospective: CAGR only shows past performance, and does not predict future performance.
Share India addresses the limitations of CAGR by offering a comprehensive suite of tools and resources that extend beyond this single metric. Users gain access to complementary analysis tools, detailed market data, and educational materials, fostering a holistic understanding of investment performance.
Start trading with Share India today and gain access to effective tools!
If you have any questions or need further support, don’t hesitate to contact Share India’s support team. You can reach us at 18002030303 or email us at support@shareindia.com.