How this works
CAGR (Compound Annual Growth Rate) answers "what single, steady yearly rate would have taken this starting value to this ending value over this many years" — it smooths out any actual year-to-year volatility into one average figure, which is why it's the standard way to compare investment performance across different time periods.
Common questions
Why not just divide the total gain by the number of years?
That gives a simple average, which ignores compounding — CAGR accounts for the fact that gains in early years themselves earn returns in later years, so it's a geometric average, and it's always slightly lower than a naive average-gain-per-year figure for the same numbers.
Does CAGR show what actually happened each year?
No — it's a smoothed single number. An investment that went up 40% one year and down 10% the next could show the same CAGR as one that grew steadily by a moderate amount each year; CAGR alone doesn't reveal that volatility.