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Average Return Calculator

A simple average flatters your portfolio; compounding tells the truth. This average return calculator turns a start-and-end value or a list of yearly returns into your CAGR and sets it beside the simple average, exposing the gap most investors miss.

See how this works on three return histories — 3 real examples

What do you know?
$
$
yrs

Annualized return (CAGR)

0.00%

Total (cumulative) return

0%

Growth multiple

1.0×

Total gain

$0

Growth over the period

Investment value
See the year-by-year pathvalue each year

How CAGR and the simple average pull apart

When you only know the start and end value, the compound annual growth rate is the single steady rate that would have taken you from one to the other:

CAGR = (End / Begin)1 / years − 1

When you enter a series of yearly returns, this tool reports three numbers. The arithmetic mean is the plain average, (r₁ + r₂ + … + rₙ) / n. The geometric mean return — mathematically identical to CAGR — chains the returns the way money actually compounds:

Geometric = [ (1 + r₁)(1 + r₂) … (1 + rₙ) ]1 / n − 1

and the cumulative return is the total growth over the whole span, (1 + r₁)(1 + r₂) … (1 + rₙ) − 1. The geometric mean is always less than or equal to the arithmetic mean, and the gap widens with volatility — this is the “volatility drag.” The intuition: a −50% year followed by a +50% year averages to 0%, but you are actually down 25%, because the gain is computed on a smaller base. For judging real compounded growth, trust the geometric mean (CAGR), not the simple average. A single −100% period wipes the investment out, so both the geometric and cumulative returns become −100%.

One number, three ways to read “average return”

A ten-year doubling, then two five-year runs that both “average 10%” — the compound rate is what tells them apart.

From $10,000 to $20,000 in ten years

CAGR per year7.18%

  • Doubling reads like 10% a year — 100% spread over ten — but the compound rate is 7.18%.
  • Each year grows on top of the one before, so a steady 7.18% is enough to double.
  • Ten years in, the account shows a $10,000 gain on the original $10,000.

The rate that honestly describes a doubling decade is 7.18%, not 10%.

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Five swinging years that average 10%

CAGR per year8.32%

  • The five returns — 24%, −18%, 30%, −6% and 20% — average out to 10% on paper.
  • Compounded in sequence, the money grows 49.10% in total, an 8.32% annual rate.
  • The 1.68-point gap between the two averages is the cost of the swings.

Volatility opens a gap between the average quoted and the growth kept.

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Five flat 10% years, same simple average

CAGR per year10.00%

  • Five identical 10% years average 10% — and this time the compound rate agrees exactly.
  • The cumulative gain reaches 61.05%, well past the choppy run’s 49.10%.
  • With no losses to climb out of, the arithmetic and geometric means sit on the same number.

Same simple average as the choppy run, about $1,195 more per $10,000 invested.

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Illustrations only, not financial advice. Your own rate, taxes and insurance will differ — check with a qualified financial advisor before acting on any of this.

Reading your annualized return, in plain English

Read the full investing-returns guide →

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Frequently asked questions

What is the difference between CAGR and average return?

CAGR — the compound annual growth rate — is the geometric annualized return that accounts for compounding, so it reflects what your money actually earned per year. The simple (arithmetic) average just adds up the yearly returns and divides by the number of years; because it ignores compounding and volatility, it almost always overstates real growth.

How is CAGR calculated?

CAGR = (ending value ÷ beginning value)^(1 ÷ years) − 1. For example, $10,000 growing to $20,000 over 10 years is (2)^(1/10) − 1 = 7.18% a year. This annualized return calculator does that math for you and, in return-series mode, computes the geometric mean of your yearly returns.

Why is CAGR lower than the arithmetic average?

Volatility drags compounded growth below the simple average because a loss requires a larger gain to recover — a 50% loss needs a 100% gain just to break even. The more your returns bounce around, the wider the gap between the arithmetic mean and the geometric mean (CAGR). That gap is often called volatility drag or variance drain.

What is a money-weighted (IRR-based) return?

A money-weighted return weights each period by how much you had invested at the time, so the timing and size of your deposits and withdrawals change the answer. CAGR and the geometric mean shown here are time-weighted — they judge the investment itself. To factor in contribution timing, use our IRR calculator instead.

When should I use time-weighted vs money-weighted return?

Use a time-weighted return (CAGR / geometric mean) to judge a fund or strategy on its own terms, since it strips out the effect of when you added money. Use a money-weighted return (IRR) to measure your personal outcome, including the timing of your contributions and withdrawals.

What counts as a good CAGR?

Over the long run the U.S. stock market has compounded at roughly 7–10% a year before inflation. A CAGR consistently above that range usually comes with higher risk or a short, lucky window. Judge any annualized return against a relevant benchmark and the volatility it took to earn it.

Disclaimer: these calculators are educational tools, not financial advice. They model your inputs with published formulas, but they cannot know your full situation — for decisions with real stakes, talk to a qualified professional. Formulas and defaults last reviewed .