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Investing & Savings

Average Return Calculator

Compare arithmetic average return with compounded annual growth rate across multiple periods.

Best for: Compare arithmetic average return with compounded annual growth rate across multiple periods.

Your assumptions

Calculate your estimate

Enter percentage returns separated by commas.

Your result

Average Return estimate

Compound annual growth rate
6.25%
Arithmetic average return
6.4%
Ending portfolio value
$13,539.78

How to use this average return calculator

Use this average return calculator to show the difference between a simple average and the compounded growth rate experienced by capital. Volatility can make arithmetic average return materially higher than CAGR.

  1. 1

    Enter periodic returns in order

    Use returns from consistent periods such as calendar years.

  2. 2

    Compare arithmetic average and CAGR

    The arithmetic figure averages observations, while CAGR reflects compounded wealth growth.

  3. 3

    Inspect volatility drag

    Test a sequence with larger gains and losses to see why dispersion lowers compounded results.

Worked planning example

Example: a 50% gain followed by a 50% loss

Set up

Enter +50% and -50% as two annual periods.

Compare

Compare the arithmetic average with the compounded result.

Takeaway

The average is 0%, but capital falls because a 50% loss requires a 100% gain to recover.

Use CAGR for realized multi-period growth

Arithmetic average is useful for expected one-period analysis, while CAGR better describes an actual compounded path.

  • Keep all return periods equal.
  • Include reinvested distributions when appropriate.
  • Do not infer future returns from a short sample.

Calculation methodology and assumptions

For this average return estimate, Silvia uses annual returns, starting portfolio value. Compare arithmetic average return with compounded annual growth rate across multiple periods. Results are estimates, not quotes, tax advice, or investment recommendations.

Frequently asked questions

Why are average return and CAGR different?

CAGR incorporates compounding across periods, while arithmetic average simply adds returns and divides by the number of observations.

Can CAGR be higher than the arithmetic average?

For the same set of periodic returns, volatility generally makes compounded growth no greater than the arithmetic average.

Does return order change CAGR?

For simple multiplicative returns over equal periods, order does not change ending value, though it can matter when cash flows occur.

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