Average Return Calculator

➕ Arithmetic Mean Return

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📈 Geometric Mean (CAGR)

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💰 Growth of $10,000

Final Value–

What Is an Average Return Calculator?

This calculator computes both the arithmetic mean and geometric mean (CAGR) of a series of annual investment returns — two different ways of averaging that can give meaningfully different results, especially with volatile returns.

How to Use the Average Return Calculator

  1. Enter each year's percentage return.
  2. Add as many years as you have data for.
  3. Compare the arithmetic and geometric mean, plus growth of a hypothetical $10,000 investment.

Average Return Formulas

Arithmetic Mean
Simple average: sum of returns ÷ number of years
Geometric Mean (CAGR)
[(1+r₁)(1+r₂)...(1+rₙ)]^(1/n) − 1

Worked Example

Example: Returns of +20%, -10%, +15%

Arithmetic mean: (20 − 10 + 15) ÷ 3 = 8.33%

Geometric mean: [(1.20)(0.90)(1.15)]^(1/3) − 1 ≈ 7.49%

The geometric mean is lower — it better reflects actual compounded growth experienced.

Understanding Your Results

Arithmetic Mean simply averages the percentages, which can overstate actual growth when returns are volatile. Geometric Mean (CAGR) accounts for compounding and reflects the actual annualized growth rate you experienced — this is why it's generally the more accurate measure for investment performance over time.

Why the Two Averages Differ

A 50% loss followed by a 50% gain doesn't get you back to even (arithmetic mean is 0%, but geometric mean shows an actual loss), illustrating why geometric mean is the more meaningful measure for compounded returns.

Common Mistakes to Avoid

  • Using arithmetic mean to describe historical investment performance, which can overstate actual results.
  • Confusing average annual return with total cumulative return over the full period.

Frequently Asked Questions

Arithmetic mean simply averages the percentages. Geometric mean (CAGR) accounts for compounding and reflects actual annualized growth — it's generally more accurate for describing investment performance.

This is a mathematical property of compounding — volatility (variance) in returns causes the geometric mean to be lower, and the gap widens with more volatile returns.

Geometric mean (CAGR) more accurately reflects what an investor actually experienced over the period, since it accounts for the compounding effect of gains and losses.

Compound Annual Growth Rate — the geometric mean return, representing a smoothed annual growth rate that would produce the same final result as the actual variable returns.

Yes — if the cumulative effect of the returns is a net loss, both arithmetic and geometric mean can be negative.