Average Return Calculator

Calculate the arithmetic average and geometric average rate of return for a series of periodic investment returns.

Understanding Arithmetic vs. Geometric Return

In financial reporting, there are two primary methods of calculating the average rate of return over multiple periods:

1. Arithmetic Average Return

The simple average of a series of returns. This represents the average return of the investment in any single individual period:

2. Geometric Average Return

The actual compounding rate of return. Geometric average accounts for compounding effects period-by-period, showing the true rate of growth of the capital:

Why Geometric is preferred: If you lose 50% in Period 1 and gain 50% in Period 2, the arithmetic average is 0%. However, starting with $100 leaves you with $50, then $75. The geometric return is -13.40%, reflecting the actual loss of capital.

Worked Example