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A simple average of investment returns can be seriously misleading — the geometric mean reflects what actually happened to your money, since it accounts for compounding.
This calculator computes both the arithmetic mean and the geometric mean (compound annual growth rate) for a series of yearly returns.
How it works
Enter 2 to 5 yearly percentage returns. The calculator finds the simple arithmetic average, then separately multiplies each year's growth factor together and takes the nth root to find the geometric mean — the rate that would produce the same final result if it applied every year.
- Enter year 1 return (%).
- Enter year 2 return (%).
- Enter year 3 return (%, optional).
- Enter year 4 return (%, optional).
- Enter year 5 return (%, optional).
- Click Calculate to see your results.
Examples
+10% then -10%
A portfolio that gains 10% one year and loses 10% the next has an arithmetic mean of exactly 0%, but a geometric mean of -0.50% — because losing 10% after a 10% gain doesn't fully offset it (a $100 investment ends at $99, not $100).
Who should use it
- Evaluating an investment's true historical performance across multiple years.
- Understanding why a fund's "average return" marketing figure might overstate actual results.
Industry applications
- Investment analysis and performance reporting
- Personal finance education
Advantages
- Calculates both means side by side, making the gap between them immediately visible.
- Handles negative (loss) years correctly.
Limitations
- Limited to 5 years of returns — longer historical series need a spreadsheet-based calculation.
Common mistakes to avoid
- Using the arithmetic mean to describe multi-year compounded performance, which overstates actual results whenever returns vary.
- Forgetting to enter losses as negative numbers.
Best practices
- Always quote the geometric mean (CAGR), not the arithmetic mean, when describing an investment's actual historical performance over multiple years.
Tips
- The more volatile a set of returns, the bigger the gap between arithmetic and geometric mean — this is sometimes called "volatility drag" or the "variance drain."