Investors Overestimate the value of growth on their investments while comparing Absolute Growth (value of ‘growth in money terms’ on invested capital) & thoroughly underestimate the value of growth in CAGR terms (compounding annual growth rate)
Meaning…I hear people say, I invested ₹ 22 Lakhs in 1998 and see, today’s value is ₹ 1.75 Cr – it grew by a fantastic 8 times
Well, Yes it grew by 8 times but…
What’s the CAGR (pre tax, pre maintenance, pre other costs)?
9.88%
8 times in absolute growth in 22 years is 9.88% in CAGR
So, when we see CAGR s….we also need to understand the actual dymanics of it ?
CAGR s of 10/ 12 / 13 / 15 ….are exponential growths for wealth accumulation in a longer time frame of 20 plus years