Average Return Calculator
Calculate the average return of your investments over time. Compare arithmetic and geometric mean returns to understand different ways of measuring investment performance.
Average Return Results
Risk Metrics
Performance Summary
Enter return data to see performance summary
Understanding Average Returns
Average returns help investors understand the typical performance of an investment over time. There are different ways to calculate averages, each providing different insights into investment performance.
Arithmetic vs Geometric Mean
| Method | Calculation | Best Used For | Limitation |
|---|---|---|---|
| Arithmetic Mean | Sum of returns ÷ Number of periods | Expected single-period return | Overstates multi-period returns |
| Geometric Mean | Compound growth rate over time | Actual multi-period performance | Always lower than arithmetic mean |
Historical Market Returns
| Asset Class | Arithmetic Mean | Geometric Mean | Volatility |
|---|---|---|---|
| S&P 500 (1926-2023) | 11.8% | 10.0% | 19.8% |
| Bonds (1926-2023) | 6.0% | 5.1% | 8.3% |
| Gold (1971-2023) | 8.9% | 6.5% | 23.4% |
| Real Estate (1978-2023) | 10.2% | 9.3% | 15.6% |
Risk-Adjusted Returns
Risk-adjusted returns consider both the return and the risk taken to achieve that return. Higher returns are more impressive when achieved with lower volatility.
- Sharpe Ratio: (Return - Risk-Free Rate) ÷ Standard Deviation
- Sortino Ratio: (Return - Risk-Free Rate) ÷ Downside Deviation
- Information Ratio: (Return - Benchmark Return) ÷ Tracking Error
Interpreting Results
- Consistency: Lower standard deviation indicates more consistent returns
- Downside Risk: Focus on negative returns and maximum drawdown
- Time Horizon: Longer periods provide more reliable average returns
- Inflation Adjustment: Real returns = Nominal returns - Inflation rate
Common Pitfalls
- Survivorship Bias: Only considering successful investments
- Look-Ahead Bias: Using information not available at the time
- Short Time Periods: Small sample sizes can be misleading
- Ignoring Fees: Returns should be net of all costs
Tip: Use geometric mean for evaluating long-term investment performance, as it properly accounts for compounding. Consider both average returns and volatility when assessing investment quality. Past performance doesn't guarantee future results.