Free average return calculator
Calculate the arithmetic and geometric mean return from a series of annual returns — see the difference and which one to use, updated live, as you type.
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Enter each year's return in %, separated by commas. Negative values are fine.
Past returns do not predict future performance. Geometric mean is preferred for compounded investment analysis.
Results are estimates. Consult a professional.
How the average return calculator works
There are two ways to average a series of investment returns. The arithmetic mean is the simple average of annual percentages. The geometric mean — also called CAGR — accounts for compounding and reflects the actual growth rate of your money. For multi-year investing, the geometric mean is almost always the more meaningful figure.
Worked example: returns of 10%, −5%, 15% over 3 years
Your portfolio posts annual returns of +10%, −5%, and +15% over three years. Which average best describes your experience?
Arithmetic vs. geometric mean for common return sequences
The geometric mean is always less than or equal to the arithmetic mean. The gap widens the more volatile the returns — a key reason why reducing drawdowns matters as much as chasing high-return years.
| Return Sequence | Arithmetic Mean | Geometric Mean | Total Growth |
|---|---|---|---|
| 5%, 5%, 5% | 5.00% | 5.00% | 15.8% |
| 10%, −5%, 15% | 6.67% | 6.30% | 20.2% |
| 20%, −10%, 25% | 11.67% | 10.52% | 35.0% |
| −5%, 30%, 10% | 11.67% | 10.75% | 35.9% |
Source: Geometric mean = (product of (1+r))^(1/n) − 1; total growth = product of (1+r) − 1.
Tips for interpreting average returns
Fund companies and financial media sometimes publish the arithmetic average — it looks better than CAGR but doesn't match your statement. Here is how to read return figures correctly.
- Always ask which average is being quoted — when you see 'average annual return' in a fund fact sheet, check whether it is arithmetic or geometric (CAGR); the footnotes usually clarify.
- Use CAGR to project future wealth — only the geometric mean compounding forward will correctly predict your ending balance from a starting value.
- Limit volatility to close the gap — because geometric mean ≤ arithmetic mean, reducing large down years improves your real compounded result even without lifting the average annual number.
- Benchmark over the same time period — comparing your 10-year CAGR against an index's 5-year arithmetic average is an apples-to-oranges comparison.
- Adjust for inflation for real-wealth comparisons — convert both averages to real returns by dividing each (1 + nominal) by (1 + inflation) before comparing across decades.
Accuracy and limitations
This calculator uses annual return figures you provide. It does not account for intra-year compounding, taxes on annual distributions, management fees, or cash flows into or out of the portfolio during the period. For portfolios with regular contributions or withdrawals, a money-weighted return (IRR) is more appropriate than either the arithmetic or geometric mean.
Note that the geometric mean applies only when all annual return figures represent the same continuously invested portfolio. If you made deposits or withdrawals during the period, use a money-weighted return (IRR) calculation instead.
Not financial advice — consult a financial professional for your specific situation.
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