Before building Average Return Calculator, we worked through the textbook example that catches almost everyone off guard the first time they see it: $100, up 50% to $150, then down 50% to $75.
Average annual return vs cagr: same data, very different answers
Average that year's two returns (+50% and -50%) and you get exactly 0% — sounds like you broke even. Run the actual numbers through our tool and it confirms: average return 0.00%, but CAGR comes out to -13.40% and the overall change is -25.00%. You didn't break even. You lost a quarter of your money.
Arithmetic mean return calculator, with the correction built in
The arithmetic average isn't wrong, exactly — it's a real statistical measure, and it's what a lot of "average return" calculators show as the only number. The problem is showing it alone, with nothing to flag that it overstates what actually happened whenever returns are volatile. This tool always shows CAGR right next to it.
Average return on volatile investment: the more volatile, the bigger the gap
The gap between average return and CAGR grows with volatility — for a steady, unchanging rate of return, the two numbers are identical. It's specifically choppy, up-and-down performance where the difference becomes large enough to matter.
