Question 1

What is ROI?

Accepted Answer

ROI (Return on Investment) measures the percentage gain or loss on an investment relative to its cost. It is calculated as (Current Value - Initial Investment) / Initial Investment × 100.

Question 2

What is CAGR?

Accepted Answer

CAGR (Compound Annual Growth Rate) is the annualized rate of return that smooths out volatility over a period. It shows what your investment would have earned per year if it grew at a steady rate.

Question 3

What is a good CAGR?

Accepted Answer

The S&P 500 has historically returned about 10% CAGR (7% after inflation). A CAGR above 10% is generally considered strong for long-term investments.

Question 4

How is CAGR different from average return?

Accepted Answer

CAGR accounts for compounding and gives the true annualized growth rate. Average return simply averages yearly returns without considering compounding, which can overstate actual performance.