Calculate the average annual return of your investment based on cash flows, deposits, and withdrawals — or the average and cumulative return of multiple investments with different holding periods.
This calculator estimates the average annual return of an entire account based on the starting and ending balances, plus the dates and amounts of any deposits or withdrawals made along the way.
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This calculator estimates the average annual return as well as the cumulative return for different investment returns with different holding periods.
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| Average Annual Return |
An average return calculator is a free online tool that helps investors determine the average performance of an investment over a period of time. Whether you're tracking a retirement account, a brokerage portfolio, or a single investment, this calculator helps you understand how your money has performed on average each year, accounting for deposits and withdrawals.
There are two common ways to calculate average return, and this calculator supports both. The first approach uses the cash flow method, which considers your starting and ending balances along with every deposit and withdrawal made during the period. The second approach uses the multi-period method, which averages the returns of several investments with different holding periods.
The calculator has two sections:
For the multi-period calculation, the average annual return is computed by:
Where:
For the cash flow method, the calculator uses an iterative time-weighted return approach that accounts for the exact timing of deposits and withdrawals.
Average return is the geometric mean of periodic returns, normalized to an annual basis. It tells you what the "typical" annual performance was, smoothing out volatility. It's the more meaningful metric when comparing investments with different holding periods.
Cumulative return is the total gain or loss over the entire investment period, expressed as a percentage. For example, if you invested $10,000 and it grew to $15,000 over 5 years, the cumulative return is 50%. Cumulative return doesn't tell you how much you earned each year — it only shows the total change.
The average rate of return (ARR), also known as the accounting rate of return, is the average annual profit an investment generates over its life. Unlike the geometric average return, ARR does not account for the time value of money — it's a simple arithmetic calculation used mostly for capital budgeting decisions.
ARR is calculated as:
Because ARR ignores the time value of money, it should always be used in conjunction with other performance metrics, like net present value (NPV) or internal rate of return (IRR).
While useful, average return has some limitations:
Q: What is the difference between average return and average annual return?
A: "Average return" and "average annual return" are often used interchangeably. Both refer to the geometric mean of periodic returns, normalized to a yearly basis. The distinction is only relevant when the holding period is less than a year.
Q: What is a good average return?
A: Historically, the S&P 500 has returned about 10% per year on average (before inflation) over long periods. However, "good" depends on your risk tolerance, time horizon, and financial goals. A 7% average annual return is commonly considered a solid long-term target for a diversified stock portfolio.
Q: How do I calculate my portfolio's average return?
A: If you have no cash flows, simply take the geometric average of your annual returns. If you have deposits and withdrawals, use the cash flow method above, which accounts for the exact timing of each cash flow.
Q: Should I use average return or CAGR?
A: CAGR (Compound Annual Growth Rate) and average annual return are essentially the same thing. CAGR is typically used for a single investment growing from a start value to an end value, while average return can apply to a series of periodic returns. Both use geometric averaging.
Q: Does average return account for inflation?
A: No. Average return as calculated here is nominal. To get the real (inflation-adjusted) return, subtract the average annual inflation rate from the nominal return. For example, a 10% nominal return with 3% inflation gives a 7% real return.
Q: What's a good average return for a retirement account?
A: Most financial planners use a long-term expected return of 6–8% per year for a balanced retirement portfolio. A more aggressive all-stock portfolio might target 8–10%, while a conservative portfolio might expect 4–6%.
Q: Can average return be negative?
A: Yes. If your investment lost money on average over the period, the average return will be negative. For example, an investment that lost 5% per year on average would have an average return of −5%.