Average Return Calculator
Calculate average returns and CAGR for your investments. See the difference between arithmetic average and compound growth, plus volatility analysis.
Type of return to calculate
Return for first year
Return for second year
Return for third year (optional)
Return for fourth year (optional)
Return for fifth year (optional)
Starting investment amount (optional, for growth calculation)
What is the difference between average return and CAGR?
Average (arithmetic) return is the simple average of yearly returns, while CAGR (Compound Annual Growth Rate) shows the smoothed annual rate accounting for compounding. Example: Returns of +50%, -25%, +30% give 18.3% average but only 14.5% CAGR. CAGR is more accurate for investment performance as it reflects actual wealth growth. Use CAGR to compare investments.
Why can average return be misleading?
Average return doesn't account for volatility impact. Example: $100 gains 50% (now $150), then loses 50% (now $75). Average return = 0%, but you lost 25%! CAGR shows the true -13.4% annual return. High volatility reduces actual returns even with positive average returns. This is why CAGR and standard deviation matter for investment analysis.
What is a good investment return rate?
Historical averages (1926-2023): S&P 500 stocks = 10-12% annually, bonds = 5-6%, real estate = 8-10%, inflation = 3%. Good returns depend on risk: Conservative (bonds) = 4-6%, Moderate (60/40 stocks/bonds) = 7-9%, Aggressive (stocks) = 9-12%. Returns above 15% consistently are rare and often indicate higher risk. Diversification across assets is key.
How do I calculate my portfolio's return?
Time-weighted return: Removes impact of deposits/withdrawals, best for comparing to benchmarks. Money-weighted return (IRR): Accounts for cash flows, shows your actual return. For simple calculation: [(Ending Value - Beginning Value - Net Contributions) / Beginning Value] × 100. Track both annually. Use this calculator for time-weighted returns across multiple periods.