Calculate the average return of an investment from a series of annual returns — both the arithmetic mean and the more accurate geometric mean (CAGR), plus the cumulative total return.
Arithmetic & geometric mean
Enter each year's percentage return, e.g. 12, -8, 22. Negative years are allowed.
There are two ways to average investment returns, and they answer different questions. The arithmetic mean is the simple average of each year's return — useful for estimating a typical year. The geometric mean (also called CAGR, compound annual growth rate) accounts for compounding and is the rate that actually turns your starting balance into your ending balance. The geometric mean is always less than or equal to the arithmetic mean, and the gap widens with volatility.
For example, returns of +12%, −8%, +22%, +5%, +15% have an arithmetic average of 9.2%, but a geometric mean of about 8.7% — the geometric figure is what your money truly compounded at. This is why a fund that gains 50% then loses 50% has a 0% arithmetic average but actually lost 25% of your money (geometric −13.4%). For measuring real, realized investment performance, always use the geometric mean.
The simple average of yearly returns. Good for estimating a single typical year, but it overstates compounded growth.
The true compound growth rate that links your start and end values. The honest measure of realized return.
The more returns swing up and down, the more the geometric mean falls below the arithmetic mean — volatility quietly erodes compounding.