Earning money is very important in the materialistic world. Does health mean wealth? It is a hypothetical question. We know health is wealth, but money is required to maintain a healthy life. Yes, money is important. From the very beginning of life, we are taught to develop our skills, so that we can utilize them in the future to have better earnings.
People earn money through working in the service sector, business, and investing in mutual funds, stocks, and cryptocurrency. Investing in Mutual Fund, stocks and cryptocurrency provide a higher rate of return than any other mode of earning, thus it’s a risky business.
From the investor’s point of view, CAGR, or compounded annual growth rate, determines the nature of their investment and the risk involved. Well, cagr calculator determines the rate, the investment will grow to compound annually.
Now, you know the definition of CAGR. But, what about its importance? Well, you may be unclear, let’s explore.
- Determining growth and risk proportion: you may be thinking how can CAGR determines, growth rate and risk proportion? Well, the answer is pretty simple. We all know this reward consists of high risk. They are directly proportional. So, if the risk is high the reward is also high. A compounded growth rate of 5 to 8% is considered stable. A return rate over 8% is considered risky. So, if we go through the compounded annual growth rate, we can easily estimate the risk involved in the investment. In addition, every smart investor checks the return rate and the risk involved.
- Helps in investment: how a compounded annual growth rate helps in investment? Let us explain it. Let’s assume you are a person from a middle-class family. You tend to save most of your earnings in savings and FD. Since you are from a middle-class family with little financial standpoint, your risk-taking factor is less. So, you have the psychology to earn less and play safe. Many people say the middle class will always be the middle class. It is because they did not tend to take the risk and earn more. In the other scenario, if you are a person from the rich upper-class section of the society. You will have a higher tendency of investing money with a higher risk to earn more. To be more precise he will have the psychology to earn money with money rather than keeping it safe in FD and savings.
- It helps to reach short-term and long-term goals: the compounded annual growth rate determines us to make short-term and long-term financial goals. Let’s assume you are aiming for a vacation abroad. It is your short-term goal. It is your goal to get a high return while taking a high risk. So that you can reach your goal of vacation abroad. On the other hand, if you intend to create an amount for child marriage or his future education. In that case, you will go for a stable long-term plan in investment.
Conclusion
While going through the above explanations, we can get the roles of CAGR in an investment plan. If it is low the risk involved is lower, and vice versa. Thus, use a future value calculator in determining the return of investment.