Average Return Calculator
Calculate the arithmetic mean return and geometric mean (CAGR) from a series of annual investment returns.
- Best Year20%
- Worst Year-8%
- Geometric Average (CAGR)8.35%
Returns swung from 20% in the best year to -8% in the worst — the CAGR of 8.35% is what you actually earned smoothed over the whole period.
- Arithmetic Average Return8.8%
The geometric average is the more accurate measure of actual compounded investment performance over multiple years.
About the Average Return Calculator
Averaging a series of yearly returns the simple way — adding them up and dividing by the number of years — gives you the arithmetic mean, and it's almost always higher than what you actually earned. The geometric mean (CAGR) accounts for the fact that returns compound on each other and that volatility itself drags down compounded results, which is why a portfolio that gained 20% one year and lost 20% the next isn't back to even, even though the arithmetic average of those two numbers is zero.
This is the calculator for the moment you're looking at a fund's year-by-year performance history and want the honest single number — checking whether an investment's marketed 'average return' matches what you'd actually have earned holding it, or comparing your own portfolio's real multi-year performance against a benchmark.
The return figures you enter are processed entirely in your browser. There's no account needed to check your own performance numbers or a fund's history against each other.
How it’s calculated
The arithmetic average simply sums the entered yearly returns and divides by the count — straightforward, but it doesn't reflect compounding. The geometric average multiplies together (1 + each year's return), takes the nth root for the number of years, and subtracts 1 — this is the rate that, applied consistently every year, would have produced the same ending value as the actual sequence of ups and downs.
Frequently asked questions
Why is the geometric average always lower than the arithmetic average?
Because volatility itself is a drag on compounded returns — a loss requires a proportionally larger subsequent gain just to break even (a 50% loss needs a 100% gain to recover), so any sequence of returns that isn't perfectly steady compounds to less than the simple average would suggest. The bigger the swings, the wider the gap between the two figures.
Which average should I actually use to judge investment performance?
The geometric average (CAGR) — it's the number that reflects what a dollar invested at the start actually grew to by the end, accounting for compounding. The arithmetic average is more useful in narrower statistical contexts, like estimating a single typical year's return, but it overstates realized multi-year performance.
Why do fund marketing materials sometimes show a higher return than I actually experienced?
Often because they're citing an arithmetic average of yearly returns, or a return calculated over a specific favorable window, rather than your personal experience shaped by when you bought in and how volatile the ride was. Comparing the geometric average against your own actual account statements is the more honest check.
Does the order of the yearly returns matter for the calculation?
No — the geometric average is a product of the same set of factors regardless of the order they occurred in, so shuffling the years produces the identical average. Order does matter, however, if you're also adding or withdrawing money along the way, which this simple average doesn't account for.
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