Geometric Mean (True CAGR)
11.53%Final value: $29,785.57Average Return Calculator
Calculate average annual return, geometric mean, CAGR, volatility drag, real return, after-tax return, and compare investment returns side by side.
Free Calculator
Average Return Calculator
Calculate arithmetic average return, geometric mean, CAGR, real return, after-tax return, volatility drag, and side-by-side return comparisons.
Average return analysis
Enter annual returns to compare simple arithmetic average against the geometric mean that reflects true compound investment performance.
Outperforming benchmark
Your true compounded return is 11.53%, beating the benchmark by 1.53% per year. Final value is $29,785.57.
Arithmetic Mean (Simple Avg)
12.30%Volatility drag: 0.77%Portfolio value progression
| Year | Annual Return | Portfolio Value | Change |
|---|---|---|---|
| 1 | 22.00% | $12,200.00 | $2,200.00 |
| 2 | -4.00% | $11,712.00 | -$488.00 |
| 3 | 15.00% | $13,468.80 | $1,756.80 |
| 4 | 8.00% | $14,546.30 | $1,077.50 |
| 5 | 28.00% | $18,619.27 | $4,072.97 |
| 6 | -12.00% | $16,384.96 | -$2,234.31 |
| 7 | 18.00% | $19,334.25 | $2,949.29 |
| 8 | 5.00% | $20,300.96 | $966.71 |
| 9 | 31.00% | $26,594.26 | $6,293.30 |
| 10 | 12.00% | $29,785.57 | $3,191.31 |
Return scenarios
Actual final value$29,785.57
If arithmetic mean was used$31,900.51 ($2,114.93 overstatement)
Benchmark performance$25,937.42
Alpha vs benchmark1.53%
Smooth return at same CAGR$29,785.57
Formula
How average return is calculated
Average return can be measured as an arithmetic mean or a geometric mean. The arithmetic mean is the simple average of yearly returns, while the geometric mean shows the actual compound annual return earned over the full period.
Arithmetic mean = sum of annual returns ÷ number of years
Geometric mean = (∏(1 + rᵢ))^(1/n) − 1
Planning note
Why CAGR is often better
CAGR smooths the path between a beginning value and an ending value. It avoids the common mistake of overestimating returns when a portfolio has volatile gains and losses.
CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1
Volatility drag = arithmetic mean − geometric mean
Use cases
When to use this Average Return Calculator
Use it to analyze historical annual returns, calculate CAGR, compare investments, estimate real returns, and understand whether simple averages are overstating performance.
Calculate arithmetic average return from annual returns
Use the estimate for planning, then review fees, taxes, volatility, investment risk, benchmark choice, and professional advice before making decisions.
Calculate geometric mean and true compound performance
Use the estimate for planning, then review fees, taxes, volatility, investment risk, benchmark choice, and professional advice before making decisions.
Measure CAGR from starting and ending investment values
Use the estimate for planning, then review fees, taxes, volatility, investment risk, benchmark choice, and professional advice before making decisions.
Compare investment returns side by side
Use the estimate for planning, then review fees, taxes, volatility, investment risk, benchmark choice, and professional advice before making decisions.
Estimate volatility drag, real return, and after-tax CAGR
Use the estimate for planning, then review fees, taxes, volatility, investment risk, benchmark choice, and professional advice before making decisions.
Review benchmark spread and compounding scenarios
Use the estimate for planning, then review fees, taxes, volatility, investment risk, benchmark choice, and professional advice before making decisions.
Calculator details
Average Return Calculator formula, assumptions, and examples
Last updated: July 2026
Formula used
Formula used
Average Return Calculator uses the values you enter to estimate totals, rates, percentages, payments, balances, or comparison results for planning.
Assumptions
Assumptions
- The numbers entered are accurate and use the same currency or time period.
- Rates, taxes, fees, deductions, and contribution rules can change.
- Rounding, timing, and real-world provider rules may cause small differences.
Example calculation
Example calculation
Enter a simple average return calculator scenario, review the estimated result, then adjust one input at a time to compare outcomes.
When to use this calculator
When to use this calculator
Calculate arithmetic average return from annual returns
Disclaimer
Disclaimer
This calculator is for estimation and educational use only. It does not replace professional financial, tax, legal, mortgage, investment, or accounting advice.
Questions
Frequently Asked Questions
What is an average return calculator?
An average return calculator estimates the average investment return from annual returns or beginning and ending values. It can show arithmetic average, geometric average, CAGR, volatility drag, and benchmark comparisons.
What is the difference between arithmetic average and geometric average?
Arithmetic average is the simple mean of yearly returns. Geometric average shows the true compounded return over time, so it is usually more accurate for investment performance.
Is CAGR the same as average return?
CAGR is a type of annualized return that smooths growth between a starting value and an ending value. It is often more useful than a simple average because it reflects compounding.
What is volatility drag?
Volatility drag is the gap between arithmetic average return and geometric return. It appears because losses and gains do not offset evenly when returns compound.
Can this calculator predict future returns?
No. The calculator uses assumptions and historical-style inputs for planning only. Future investment returns can vary because of market performance, fees, taxes, inflation, risk, and timing.
