How we worked it out
Updated as you change the numbers.
- Growth factor = (1 + r₁) × (1 + r₂) × … ; CAGR = growth^(1 ÷ years) − 1.
- The arithmetic average is the plain average of the yearly returns.
Method and assumptions
The annualized or geometric return (CAGR) is the steady yearly rate that would turn the starting value into the ending value. It is always at or below the arithmetic average; the gap grows with volatility. A year of −50% followed by +50% averages 0% but loses 25%.
Questions
Why is my average return higher than my actual growth?
Losses hurt more than equal gains help. −50% then +50% leaves you with 75% of what you started with, an annualized −13.4%, even though the average is 0%.
Sources
Method and figures checked on . Every worked answer on this page is covered by an automated test. Found a mistake? Tell us.