Average Return Calculator
Average a series of annual returns arithmetically and geometrically (CAGR) to judge true growth.
Runs 100% in your browser — nothing is uploaded.
Separate yearly returns with commas.
Result
Formula
Geometric mean return = (∏(1+rᵢ))^(1/n) − 1
About this calculator
The geometric mean is the honest number for compounding; the arithmetic mean always overstates multi-year growth when returns vary.
How to use
- 1
Enter your annual returns as percentages, separated by commas (e.g., 10, -5, 20).
- 2
Optionally, enter an initial investment amount to see the final value.
- 3
Click Calculate to view the arithmetic average, geometric average (CAGR), and total growth.
Frequently asked questions
What is the difference between average return and CAGR?
Average return (arithmetic mean) is the simple average of annual returns, while CAGR is the geometric mean that accounts for compounding. CAGR is generally lower than the arithmetic average when returns are volatile, and it is the more accurate measure of growth over time.
Why is CAGR often lower than the arithmetic average return?
CAGR accounts for the compounding effect, where gains and losses are reinvested. Volatility reduces the compound growth rate compared to the simple average of returns, a phenomenon known as volatility drag.
Should I use average return or CAGR to evaluate an investment?
For long-term investments, CAGR is more appropriate because it reflects the actual growth of your investment. The arithmetic average can be misleading, especially if returns fluctuate significantly.
Please note: Results are estimates for general information only and are not professional or medical/financial advice.