Compute the compounded average return across several periods, the only average that reconciles values.
Only the geometric mean reconciles the start and end values of a volatile series. The gap to the arithmetic mean grows roughly with half the variance, which is why volatile assets compound more slowly than their average return suggests. A fund advertising a 12% average annual return may have compounded at 9%, and it is the lower figure that determines what your account is worth.
Geometric Return
Geometric return = (∏(1 + rᵢ))^(1/n) − 1
Geometric return = (∏(1 + rᵢ))^(1/n) − 1 Only the geometric mean reconciles the start and end values of a volatile series. The gap to the arithmetic mean grows roughly with half the variance, which is why volatile assets compound more slowly than their average return suggests.
A fund advertising a 12% average annual return may have compounded at 9%, and it is the lower figure that determines what your account is worth.
This calculator takes 5 inputs: Year 1 return, Year 2 return, Year 3 return, Year 4 return, Year 5 return. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.