Using the Average Return Calculator
Enter percentage returns for equal periods. A gain and an equal percentage loss do not cancel in money terms because the loss applies to a different balance. The geometric average captures that compounding effect.
Worked example
Use the example inputs below to reproduce this result. These are the form's starting values, not recommended targets. Changing your inputs updates your result above; this worked example stays fixed for comparison. Results are rounded for display.
Example inputs
- Annual returns (%)
- 10, -5, 12
Example result
- Arithmetic mean (%)
- 5.67
- Geometric mean (%)
- 5.38
Method and assumptions
Arithmetic mean averages individual returns; geometric mean measures compound growth over equal annual periods.
Separate contributions from growth
An ending balance can grow because you put more money in, because the assumed return is higher, or because the money has more time to compound. Those are different effects. Keep the contribution schedule consistent when comparing rates, and distinguish a mathematical projection from a return that is contractually guaranteed. Fees and taxes need their own assumptions.
Common question
Why is the geometric average usually lower?
Uneven returns reduce compounded growth relative to a simple arithmetic average. When every period has the same return, the two averages are equal.
Guide updated .