Investing Basics: ROI vs CAGR vs Compound Interest (Complete Guide)
Learn the investing basics that matter: ROI, CAGR, and compound interest. Understand when each metric is correct, avoid common mistakes, and use simple examples.
ROI, CAGR, and compound interest sound similar but answer different questions. Using the wrong one can distort performance.
The three metrics in one sentence
- ROI: total return.
- CAGR: annualized return.
- Compounding: projected growth with reinvestment.
When to use each
- ROI for quick snapshots.
- CAGR for comparing different timeframes.
- Compounding for long-term planning.