CAGR (compound annual growth rate) answers one question: at what constant yearly rate would your portfolio have had to grow to get from its starting point to where it is today? It smooths out the bumps along the way into a single annualized figure.
Lemma Analysis computes it from a flow-adjusted return index (Modified Dietz), so deposits and withdrawals move your capital but not your CAGR — only actual investment performance counts.
The return index starts at 100 at your first transaction and compounds monthly flow-adjusted returns.
A portfolio whose return index went from 100 to 161 over 4 years has a CAGR of about 12.7% — even if individual years were +30%, −10%, +18% and +9%.
Compare your CAGR against the broad market — the S&P 500 has returned roughly 10% a year nominal over the long run. Rough reference bands for a long-term equity portfolio (in USD):
| CAGR | Reading |
|---|---|
| < 0% | the portfolio is losing money |
| 0–7% | below market, comparable to bonds or deposits |
| 7–12% | in line with the broad market |
| 12–15% | above market — good if sustained |
| > 15% | excellent, but rarely sustainable over 10+ years |
CAGR is the headline number for long-horizon investing: it is what compounding actually delivers. It matters most when comparing strategies, funds, or your own portfolio against an index over multi-year periods.
Under about 3 years of history CAGR is nearly meaningless — entry timing dominates. On short horizons, alpha (return above your market exposure) is a fairer measure of skill. CAGR also says nothing about the ride: two portfolios with identical CAGR can differ wildly in drawdowns and volatility.