Average Return Calculator

How it works

Calculate the Arithmetic Mean and Geometric Mean (CAGR) of a series of investment returns.

Calculate arithmetic and geometric mean of returns

Description

The Average Return Calculator is a powerful tool for analyzing investment performance over multiple periods. It calculates two critical metrics: the Arithmetic Mean (a simple average) and the Geometric Mean (also known as the Compound Annual Growth Rate, or CAGR).

Inputs

• Annual Returns: A list of yearly percentage returns, separated by commas (e.g., 10, -5, 12, 8). Supports both positive and negative values.

Outputs

• Geometric Mean (CAGR): The constant annual rate of return that would result in the same final investment value. This is the most accurate measure of investment growth.
• Arithmetic Mean: The simple average of the annual percentages.
• Total Growth Over Period: The cumulative percentage growth from the start of the first year to the end of the last year.

Chart

• N/A: This tool provides a direct numeric analysis of a return series.

“Good to Know”

• The Arithmetic Mean is often misleading for investments because it doesn’t account for the “compounding” effect or the impact of negative years.
• The Geometric Mean will always be lower than (or equal to) the Arithmetic Mean if there is any volatility in the returns.
• If an investment drops 50% one year and gains 50% the next, the Arithmetic Mean is 0%, but the Geometric Mean is -13.4% because you actually lost money overall.

Examples

Example 1: Steady Growth

• Input:
  • Returns: 10, 10, 10
• Output:
  • Geometric & Arithmetic: 10.00%
  • Total Growth: 33.10%

Example 2: Typical Stock Market

• Input:
  • Returns: 10, -5, 20, 8, 12
• Output:
  • Arithmetic Mean: 9.00%
  • Geometric Mean (CAGR): 8.65%
  • Total Growth: 51.40%

Example 3: High Volatility recovery

• Input:
  • Returns: -20, 40
• Output:
  • Arithmetic Mean: 10%
  • Geometric Mean: 5.83%
  • (Shows how volatility “drags” on the compound growth rate).