Average Return Calculator
Calculate the arithmetic mean and geometric mean (CAGR) of annual investment returns, plus best and worst year performance.
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How to use this calculator
Arithmetic mean simply averages the returns. Geometric mean accounts for compounding and reflects the true growth rate — always lower or equal to arithmetic mean.
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Enter annual return percentages for each year — use negative values for loss years.
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Leave trailing year fields at 0 if you have fewer than 8 data points.
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The calculator shows both arithmetic and geometric (CAGR) means, plus best and worst years.
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The geometric mean is the more accurate representation of compound growth — use it for "what did I actually earn?" questions.
Frequently asked questions
Why is the geometric mean always lower than or equal to the arithmetic mean?
Volatility drag. A 50% loss followed by a 50% gain does not return you to zero — it leaves you down 25% ($1,000 → $500 → $750). The arithmetic average is 0%, but the geometric mean is -13.4%, correctly reflecting the actual loss. Greater volatility widens the gap between the two.
Which return measure should I use when evaluating a fund?
Use the geometric mean (CAGR) for evaluating how your actual money would have grown. Use arithmetic mean as an estimate of expected return for a single future year. Marketing materials sometimes quote arithmetic means — always ask for CAGR for a fair long-term comparison.
What is a good average annual return?
Global equity indices have averaged roughly 9–10% arithmetic, 7–8% geometric (CAGR) over the long term. Bonds average 3–5%. After inflation (~3%), real equity CAGR is approximately 5–6%. Individual stocks are far more variable.
How does sequence of returns affect outcomes?
For someone accumulating savings, sequence doesn't matter — only the geometric mean does. For someone drawing down in retirement, bad early returns are devastating (the "sequence of returns risk"). A portfolio that earns −30% in year 1 then +10% for the next 20 years leaves a retiree far worse off than one that earns the same returns in reverse order.
Arithmetic vs geometric return: which number to trust
Why CAGR is the honest measure
Compound Annual Growth Rate (CAGR) tells you the single constant annual rate that would turn your starting value into your ending value over the same number of years. It accounts for the compounding of gains and losses. When a fund advertises "average returns of 15%," check whether that's arithmetic or geometric — the difference can be several percentage points after a volatile period.
Volatility drag: the hidden return killer
Volatility drag is the gap between arithmetic and geometric returns. A fund with standard deviation of 20% loses roughly 2% per year (σ²/2) to volatility drag versus its arithmetic average. Lower volatility at the same arithmetic mean means higher real compound growth. This is why risk-adjusted return measures like the Sharpe ratio matter alongside raw returns.
Reading fund performance tables
Mutual fund and ETF fact sheets typically show "annualized returns" — that's CAGR. "Year-by-year returns" is the raw data you can plug into this calculator to verify. Always check 1-year, 3-year, 5-year, and 10-year CAGR figures. Be wary of cherry-picked inception-date returns if the fund launched after a crash (favorable starting point).
Learn more from an authoritative source:
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Results are estimates for informational purposes only and do not constitute professional financial, medical, legal, or technical advice. Read full disclaimer →