Average Return Calculator – Estimate Investment Performance
Compute the arithmetic and geometric average return of a series of annual returns.
About the Average Return Calculator
What is the Average Return Calculator?
An average return calculator computes both the arithmetic and the geometric average of a series of annual returns, and shows why the difference matters.
Why use this calculator?
The geometric average reflects what your money actually earns because it accounts for compounding. The arithmetic average is always higher when returns vary.
How to use it
- Enter your annual returns separated by commas.
- Enter the holding period and initial investment.
- Compare the arithmetic and geometric averages and their terminal values.
Formula
Arithmetic = mean of returns; Geometric = (Π(1+r))^(1/n) − 1.
Use the geometric average for growth projections; the arithmetic average overstates results in volatile portfolios.
Frequently Asked Questions
Why can the arithmetic average be misleading?
Because it ignores the order of returns and compounding. A 50% loss followed by a 50% gain averages 0% but loses 25% of your money.
What is CAGR?
Compound annual growth rate, the geometric average expressed as the smooth annual rate that produces the same ending value.
What is compound interest?
Compound interest is interest earned on both your original money and on previously earned interest. Over time it can make savings grow much faster than simple interest.
What is the difference between nominal and effective return?
The nominal return ignores compounding within the year, while the effective (annualised) return accounts for it. The effective figure is usually higher and better reflects real growth.
How does inflation affect my returns?
Inflation erodes purchasing power. The real return is the nominal return minus inflation, so an investment can grow in dollars yet still lose value in what it can buy.
What rate of return should I assume?
A common long-term assumption for a diversified stock portfolio is about 6% to 8% per year after inflation, but returns vary and are never guaranteed.
Does this account for taxes and fees?
Unless stated, the tool shows pre-tax, pre-fee growth. Subtract your fund expense ratio and expected tax rate to estimate what you keep.
Is this calculator free to use?
Yes. Every calculator on this site is completely free, with no hidden fees, no subscriptions and no limits on how many times you can use it.
How accurate are the results?
We use standard, widely accepted formulas and calculate in your browser using double-precision arithmetic. Results are rounded for readability, so treat them as reliable estimates rather than a guarantee. Real-world factors can vary the true figure.
Can I add this calculator to my own website?
Yes. Open this calculator page and use the "Add to your website" box in the sidebar to copy a ready-made iframe snippet, then paste it into any HTML page.