Understanding your calculation
Method, example and limitations
How the calculation works
An arithmetic average adds the period returns and divides by their count. A geometric return compounds growth factors and is usually more informative about multi-period balance growth.
Example to check
A +10% year followed by a −10% year has a 0% arithmetic average, but $100 becomes $99. The two-year total return is −1%.
Before using the result
Use comparable periods and distinguish simple averages from compounded or annualized returns. Cash deposits and withdrawals need additional treatment.