My insurance policy just matured today, and I thought it would make a nice example to understand what CAGR is: compounded annual growth rate.
All investment products should be scrutinised by its returns on a CAGR basis, especially when it spanned across multiple years like this. It offers a perspective on whether the investment had been a great one, or could there be better alternatives around?
Total premiums paid over 18 years: $18441
Total returns: (survival benefits of $500 every year) $8000 + (eventual returns) $13329.01= 21329.01
The CAGR formula is a simple one. (eventual sum / starting sum) to the exponential of 1/number of years.
(21329.01/ 18441) ^ (1/17)
=1.00859
which is actually 0.86% per annum
What a rubbish return really. So it was great I had encashed all the survival benefits and reinvest it into stocks intelligently.
I could have bought a bond ETF and do better.
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