1. What Is Average Return?

Average Return is the arithmetic mean of investment returns over a specified period. It represents the simple average of a series of returns generated over time, providing a straightforward measure of historical performance.

2. How Does The Calculator Work?

The calculator uses the average return formula:

Where:

• \( \sum \text{Returns} \) — Sum of all individual returns
• \( n \) — Number of periods
• Returns — Individual period returns in percentage

Explanation: This calculation provides the simple arithmetic mean of returns, which is useful for comparing performance across different time periods or investments.

3. Importance Of Average Return Calculation

Details: Average return helps investors assess historical performance, compare different investments, and set realistic expectations for future returns. It's a fundamental metric in portfolio analysis and investment decision-making.

4. Using The Calculator

Tips: Enter returns as comma-separated percentage values (e.g., "5, 8, -2, 12, 6"). The calculator will automatically calculate the average and count the number of periods.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between average return and annualized return?
A: Average return is the simple arithmetic mean, while annualized return accounts for compounding effects over multiple periods, providing a more accurate long-term performance measure.

Q2: When is average return most useful?
A: Average return is most useful for comparing investments with similar risk profiles over identical time periods and for quick performance assessments.

Q3: What are the limitations of average return?
A: It doesn't account for volatility, compounding effects, or the sequence of returns, which can significantly impact actual investment outcomes.

Q4: How does average return differ from geometric mean?
A: Arithmetic average return is simpler but can overstate performance, while geometric mean accounts for compounding and provides a more accurate representation of actual growth.

Q5: Should I use average return for long-term investment decisions?
A: For long-term decisions, consider using annualized returns or other metrics that account for compounding and volatility for more accurate planning.