Understanding the average return calculator
There are two ways to average returns, and they answer different questions. The arithmetic average simply adds the yearly returns and divides useful for estimating a typical year. The geometric average, or compound annual growth rate (CAGR), is the single steady rate that would have produced the same final balance, and it's what actually matters for money that compounds.
The geometric average is always lower than the arithmetic one when returns vary, because losses hurt more than equal-sized gains help: a 50% loss needs a 100% gain to recover. That gap widens with volatility, which is why a fund advertising a high average annual return can deliver much less real growth. When you care about what you actually ended up with, use the geometric figure.
Results are estimates for education only and are not financial advice.