$ Dollar All Tools

288 free calculators - no signup required

CalcHive: Free Online Calculators for Finance, Health & More

288 professional tools for finance, health, freelancing, and creator analytics - delivering accurate answers instantly, with no account required.

Browse All 288 Tools
288+ Professional Tools0 Signups RequiredPrivacy-FirstUsed Worldwide
No Signup100% FreeInstant ResultsMobile ReadyTrusted Formulas

Popular right now

Mortgage CalculatorBMI CalculatorGPA CalculatorAge CalculatorScientific Calc

Average Return Calculator – Arithmetic vs Compound Annual Return

When an investment earns different returns each year, there are two ways to average them: the arithmetic mean (simple average) and the geometric mean (compound average). The two can give very different answers, and using the wrong one can significantly mislead investment performance analysis.

This calculator computes both the arithmetic and geometric (CAGR) average return from a series of annual percentage returns. Enter each year's return and instantly see both averages with an explanation of which is appropriate for your use case.

How to use the Average Return Calculator

  1. Enter each year's return as a percentage (positive for gains, negative for losses).
  2. Add as many years as needed.
  3. View arithmetic average, geometric average (CAGR), and the difference between them.
Arithmetic vs Geometric Average: Why It Matters
YearAnnual ReturnRunning Balance ($10,000 start)
Year 1+50%$15,000
Year 2−33%$10,050
Arithmetic average+8.5%(misleading — implies growth)
Geometric average (CAGR)~+0.25%(accurate — near breakeven)

Average Return Calculator FAQ

Why is the geometric mean better for investment returns?
Geometric mean accounts for the compounding effect — it answers 'what single annual return would produce the same final result?' The arithmetic mean ignores that a 50% loss requires a 100% gain to break even, not another 50%.
When is the arithmetic mean useful?
For estimating future expected returns when making prospective projections, the arithmetic mean is theoretically correct. For measuring actual historical performance of a portfolio, the geometric mean is more accurate.
What is CAGR and how is it different from average return?
CAGR (Compound Annual Growth Rate) is the geometric mean — the constant annual return that would turn the starting value into the ending value. It's the most commonly used measure of investment performance over multiple years.
How do I calculate CAGR?
CAGR = (ending value ÷ starting value)^(1/years) − 1. For example, $10,000 growing to $18,000 over 6 years: (18,000÷10,000)^(1/6) − 1 = 10.3% CAGR.