Average Return Calculator
Calculate both the arithmetic mean and geometric mean (CAGR) of an investment's annual returns. CAGR is the right number for measuring actual compounded performance.
How to use the Average Return Calculator
- Enter your inputs into the Average Return Calculator above.
- Results update instantly as you type — no submit button needed.
- Adjust any value to see how the result changes in real time.
The average return formulas
Arithmetic: (Σ returns) / n · · · CAGR = (Ending / Beginning)^(1/n) − 1
Arithmetic mean is the simple average of annual returns. CAGR (Compound Annual Growth Rate) is the constant rate that would turn the beginning balance into the ending balance — always equal or lower than the arithmetic mean.
Worked example
An investment returns +50% in year 1 then −50% in year 2. Arithmetic mean: 0%. CAGR: started at $100, ended at $75, so CAGR = (75/100)^(1/2) − 1 ≈ −13.4%. CAGR correctly captures the actual loss.
Frequently asked questions
Why is CAGR always lower than arithmetic mean?
Because volatility "costs" you when compounding. A −50% year requires a +100% year just to break even, so volatile returns produce lower long-term growth than steady ones at the same arithmetic mean.
Which average is the right one?
CAGR for measuring actual investment performance. Arithmetic mean for some statistical applications (risk modeling). Many fund fact sheets cite both.
How is CAGR different from time-weighted return?
CAGR ignores cash flows during the period. Time-weighted return accounts for the timing of deposits and withdrawals, isolating the underlying investment's performance.