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Average Return Calculator

Calculate CAGR, compare arithmetic and geometric means, and understand the impact of volatility on returns.

Currency
Calculation Mode
Investment Values

Initial investment value

Final investment value

1 years50 years

Understanding Return Metrics

Key Metrics

  • CAGR: The smoothed annual return that would produce the same final value
  • Arithmetic Mean: Simple average of returns; overestimates growth
  • Geometric Mean: Compound average; reflects actual growth rate
  • Volatility Drag: The difference between AM and GM; cost of volatility

Formulas

CAGR:

(End/Start)^(1/years) - 1

Arithmetic Mean:

Sum(returns) / n

Geometric Mean:

[Product(1 + r)]^(1/n) - 1

Why Arithmetic Mean Overestimates

Consider an investment that goes up 50% and then down 50%:

0%

Arithmetic Mean

(+50% - 50%) / 2

-13.4%

Geometric Mean

sqrt(1.5 x 0.5) - 1

-25%

Actual Return

$100 to $75