Calculate arithmetic mean return, geometric mean (CAGR), and time-weighted return from a series of annual investment returns.
Enter each year's return as a percentage. Negative values allowed. Separate with commas or new lines.
| Metric | Value |
|---|
When calculating average investment returns, there are two different averages — and they give different answers. The arithmetic mean simply averages the annual return percentages. The geometric mean (also called CAGR or compound annual growth rate) accounts for the compounding effect and represents the true average rate at which your investment grew.
| Year | Annual Return | $10,000 Balance |
|---|---|---|
| Year 1 | +50% | $15,000 |
| Year 2 | −33% | $10,050 |
Arithmetic mean: (+50% + −33%) ÷ 2 = 8.5% per year — sounds impressive
Geometric mean: (1.50 × 0.67)^(1/2) − 1 = 0.25% per year — the true result
The arithmetic mean says 8.5% average — but your $10,000 only grew to $10,050 over two years (0.25% CAGR). The geometric mean is the correct measure because it reflects what actually happened to your money.
| Asset Class | 10yr Geometric Mean (CAGR) | Arithmetic Mean | Volatility (Std Dev) |
|---|---|---|---|
| ASX 200 (total return) | ~8.5-9.5% p.a. | ~10-11% p.a. | ~13-16% p.a. |
| Australian Bonds (Bloomberg AusBond) | ~2.5-4% p.a. | ~2.8-4.2% p.a. | ~4-6% p.a. |
| Balanced super fund | ~6-8% p.a. (net) | ~7-9% p.a. | ~6-10% p.a. |
What is CAGR (Compound Annual Growth Rate)?
CAGR is the geometric mean annual return of an investment — the constant rate at which an investment must have grown to reach its ending value from its starting value. CAGR = (Ending Value ÷ Starting Value)^(1/years) − 1. A $10,000 investment growing to $20,000 in 7 years has a CAGR of (20,000/10,000)^(1/7) − 1 = 10.41% p.a.
Why is geometric mean better than arithmetic mean for investments?
For multi-period investment returns, the geometric mean accurately reflects what happened to your actual money. A 50% gain followed by a 33% loss leaves you almost where you started — but the arithmetic mean of these returns suggests 8.5% average growth. Only the geometric mean (0.25%) correctly shows the near-zero growth. Always use geometric mean (CAGR) for evaluating multi-year investment performance.
What is a good average annual return in Australia?
Context matters: 5-6% p.a. geometric return is considered solid for a conservative portfolio (high bonds, low shares). 7-8% is typical for balanced super funds over long periods. 9-10%+ is achievable for growth portfolios concentrated in Australian and international shares but with higher year-to-year volatility.
How do you find the average of a set of numbers?
To find the average (also called the mean), add all the numbers together and divide by how many numbers there are. For example, the average of 4, 8 and 12 is (4 + 8 + 12) ÷ 3 = 8. This average calculator does the computation instantly for any list of values.
What is the difference between average and average return?
A plain average is the mean of any set of numbers. An average return applies that same averaging to investment gains over time. This calculator handles both — enter values to compute a simple average, or period returns to find an average return.