Average Return Calculator
Average Return Based on Cash Flow
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Average and Cumulative Return
Enter the return for each holding period and how long it lasted to find the cumulative return and the average annual (compound) return over the whole time.
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This average return calculator finds the annualized, money-weighted return of an investment account with deposits and withdrawals on specific dates, or the average and cumulative return of several holding periods.
Average Return
The average return tells you how fast an investment grew per year over a stretch of time. The catch is that there are several ways to average, and they can give very different answers. A simple (arithmetic) average adds up yearly returns and divides by the number of years. It is easy, but misleading for anything held more than one year: an investment that gains 50% one year and loses 50% the next has an arithmetic average of 0%, yet $100 became $150 and then $75, a real loss.
The geometric average, also called the compound annual growth rate, fixes this by asking what single steady rate would have produced the same final result. In the example it is about −13.4% a year. When money is added or withdrawn along the way, the most meaningful figure is the money-weighted return, which the first calculator computes from the dates and sizes of every deposit and withdrawal.
Average Rate of Return
For a series of returns over known lengths of time, multiply together one plus each return, then take the root that corresponds to the total number of years. The second calculator uses its defaults: 10% over 1 year 2 months, −2% over 5 months and 15% over 2 years 3 months. The growth factor is 1.10 × 0.98 × 1.15 = 1.2397 over 3 years 10 months (3.833 years), so the average annual return is 1.2397^(1 ÷ 3.833) − 1 ≈ 5.76%.
Average annual return = [(1 + R₁)(1 + R₂)…(1 + Rₙ)]^(1 ÷ T) − 1
- Rᵢ
- return of period i, as a decimal
- T
- total length of all periods, in years
The product inside the brackets, minus 1, is the cumulative return.
Cumulative Return
Cumulative return is the total percentage change over the whole period, regardless of how long it took: the growth factor minus one. In the example above it is 23.97%. It is the right number for answering how much an investment grew in total, but it cannot compare investments held for different lengths of time; for that, convert it to an annual rate.
Fund fact sheets and brokerage statements usually show both. Cumulative returns over 1, 5 and 10 years tell you the total change, and annualized returns over the same windows let you compare against benchmarks and other funds. When reading them, check whether they include reinvested dividends (total return) and whether fees have been subtracted.
| Cumulative return | Over 2 years | Over 5 years | Over 10 years |
|---|---|---|---|
| +25% | 11.80% / yr | 4.56% / yr | 2.26% / yr |
| +50% | 22.47% / yr | 8.45% / yr | 4.14% / yr |
| +100% | 41.42% / yr | 14.87% / yr | 7.18% / yr |
| −20% | −10.56% / yr | −4.36% / yr | −2.21% / yr |
Frequently asked questions
What is the difference between average and cumulative return?
Cumulative return is the total gain over the whole period. Average annual return spreads it into an equivalent yearly compound rate.
Why not just average the yearly returns?
A simple average ignores compounding and overstates results when returns vary. +50% then −50% averages 0% but loses 25% of the money.
How are deposits and withdrawals handled?
The first calculator finds the single annual rate at which every deposit, withdrawal and the ending balance balance out, given their dates. This money-weighted return is also called XIRR.
What is a good average annual return?
It depends on the investment. Broad US stocks have returned roughly 10% a year over the long run before inflation; high-quality bonds and cash have returned much less.
Results are estimates for educational purposes and are not financial, tax or legal advice. Confirm figures with a qualified professional or your lender.
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