Average Return Calculator
Adjust the inputs below. Results update as you type.
How it works
Arithmetic mean adds returns and divides by years—it overstates actual growth. Geometric mean = (product of (1+r) for each year)^(1/n) − 1, which equals CAGR and accurately represents compounded growth. A 50% loss followed by a 50% gain leaves you 25% below start, not flat. Use geometric mean for performance evaluation.
Input guidance
- Use realistic rates from lender or provider quotes instead of headline averages.
- Model conservative, baseline, and optimistic scenarios before deciding.
- Include recurring real-world costs (fees, taxes, insurance, maintenance) where relevant.
The formula
The arithmetic average is the simple mean of yearly returns. The geometric (annualized) return is ((ending/beginning)^(1/n) − 1), which reflects actual compounded growth.
Worked example
Returns of +50% then −50% average 0% arithmetically, but the geometric return is −13.4% — because $100 becomes $150 then $75, an actual loss.
More examples to test
- Conservative case: use a higher interest rate and lower growth assumptions to stress-test affordability.
- Optimistic case: use a lower rate with stable income assumptions to compare upside potential.
How to interpret results
Treat this as a planning model, not a final approval tool. Compare at least two scenarios and focus on total-cost and cash-flow trade-offs.
When this can be inaccurate
Results can diverge due to fees, changing rates, tax rules, lender policies, and behavior changes that simplified models cannot fully capture.
Change history
- July 2026: Quality-reviewed for publication with formula checks and explanatory copy updates.
Site-wide corrections also appear on the corrections log.
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Frequently asked questions
Which average should I use?+
Geometric (annualized) return reflects real compounded growth and is the honest measure for investments. Arithmetic average overstates results when returns vary.
Why do the two differ?+
Volatility drags compounded results below the simple average. The wider the swings, the bigger the gap between arithmetic and geometric returns.
What is CAGR?+
Compound annual growth rate — the geometric return — the single yearly rate that turns the starting value into the ending value over the period.
How should I use this result?+
Treat it as a planning estimate. Compare at least two realistic scenarios, then confirm with statements, quotes, or a qualified professional before acting.
How often should I refresh assumptions?+
Refresh whenever rates, income, costs, or policy limits change materially, and before making irreversible commitments.