Average Return Calculator

When evaluating investments, the average return you see advertised can be misleading. This calculator shows both the arithmetic average and the compound annual growth rate (CAGR) — the true measure of investment performance.

Arithmetic vs. Geometric (CAGR) Return

Arithmetic mean: Simple average of annual returns. (+50% one year, −50% the next = 0% average, but you actually lost 25% of your money.)

CAGR: The steady annual rate that would produce the same final result. This is the true annual return. It's always ≤ the arithmetic mean.

How to Use This Calculator

1. Enter the starting value of the investment.
2. Enter the ending value.
3. Enter the number of years.
4. Optionally enter individual annual return percentages for each year.
5. Click Calculate to see both arithmetic mean and CAGR.

CAGR Formula

CAGR = (Ending Value ÷ Starting Value)^(1/n) − 1

Where n = number of years.

Example Calculation

Investment grew from $10,000 to $18,500 over 6 years.

• CAGR = ($18,500 ÷ $10,000)^(1/6) − 1 = 1.085^(1/6) − 1 = 10.8% annually

Year-by-year: +25%, −10%, +15%, +20%, −5%, +18% → Arithmetic mean = 10.5% but CAGR = 10.1%

Common Mistakes to Avoid

• Using arithmetic mean for multi-year performance — It overstates actual returns due to volatility drag. Always use CAGR.
• Comparing CAGR across different time periods — A 3-year CAGR during a bull market vs. a 10-year CAGR through a full cycle are not comparable.
• Ignoring fees and taxes — Your actual CAGR is after fees and (for taxable accounts) after taxes on dividends and gains.

Frequently Asked Questions

What is a good CAGR for stocks?

The S&P 500 has historically produced a CAGR of ~10% nominal, ~7% inflation-adjusted. Individual stocks can vary wildly. For a portfolio, 7%–10% CAGR is considered solid long-term performance.

Can CAGR be negative?

Yes — if the ending value is less than the starting value. A $10,000 investment worth $7,000 after 4 years has a CAGR of −8.5%.

How is CAGR different from IRR?

CAGR works on a single lump sum (no contributions). IRR accounts for multiple cash flows over time. See our IRR Calculator for investments with irregular cash flows.

Conclusion

CAGR is the gold standard for measuring investment performance over time. Use it — not the arithmetic average — whenever you're comparing investment options or evaluating historical performance.

Related: ROI Calculator | IRR Calculator | Investment Calculator | Compound Interest Calculator