Average annual growth rate is a relatively simple way of describing a portfolio's growth over time. The calculation involves dividing the profit investments have shown by the number of years involved. It doesn't take into account fluctuations in growth over the years or the ways that complications, like compounding, have impacted the figures.
Stepping away from finance for a second, imagine an 18 year old with a 30 inch waist. Now imagine the same person, now 33, with a waist measurement of 45. The AAGR of the person's waistline is 1 inch per year. What the calculation doesn't know is that everything was fine until the divorce and the layoff, and that for the last years, it just seemed like no one cared except Krispy Kreme and McDonald's. (Don't worry; we're feeling much better now.)
Anyway, AAGR is something of a back-of-the-envelope measure. However, in the financial realm, it's popular in marketing materials for investment outlets, things like mutual funds and financial advisors.
Average Annual Growth Rate can be used to calculate the increase of value for an investment. It's done by finding the mean value in a series of growth measurements. So to calculate it, you would find the annual rate of return for the business, then compare that year to the one before it to find the percentage it changed (hopefully as an increase). You could do this as many times as you wished to determine if it's increasing or decreasing, and by what percentage, for any length of time.
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Finance: What is an Annualized Return?36 Views
Finance, a la shmoop. What is an annualized return? Alright people, well
when you invest a dollar you hope or even expect to get more than a dollar [ATM machine]
back, at some point. And let's say you invested that dollar in Terminators
Closet -a leading dealer in cybernetic body enhancements. And it went from $1 a
share to a dollar ten six months later. Alright, nice return.
You made 10% in just six months but in most investing discussions ,investment [spreadsheet shown]
returns are discussed in the form of annual returns, not monthly or daily or
biannual numbers, so you need to convert your six-month return into an annualized [angelic glow]
one, and you can do the process here of computing that number that is if you made
10% in six months well then in a year presumably you could notion that you'd
have made 20%. It's not that you would have guaranteedly made 20% it's just [spreadsheet shown]
the math saying that well if you had compounded at that rate then you'd have
made 20%, so what if she made 10% in a month? Well the stock went from a buck a
share Jan 1 to a buck ten a share by Feb 1 .Well if you impute so that you can [calendar shown]
compute that month's gain of 10% would carry a compound rate of a hundred
twenty percent. Right ? You're multiplying 12 months times 10 there, that'd be
annualizing it meaning, that at that rate you are more than doubling your money on [spreadsheet shown]
an annualized return basis. And that's more than enough dough to keep
terminators closet popping out those Wi-Fi enabled contact lenses faster than [woman watches TV]
people can wear them.
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