Geometric mean return
Principles of Finance glossary · Time Value of Money
Definition
The compound average return over a sequence of periods.
Geometric mean return in plain English
When you earn returns year after year, they compound — each year builds on the pot the previous year left you. The geometric mean return is the single steady rate that, if you'd earned it every year, would leave you with exactly the same final amount you actually ended up with. It's the honest "average" for growth, because it accounts for compounding: if an investment drops 50% one year and gains 50% the next, a plain average says you broke even, but you're actually down — and the geometric mean correctly shows the loss. Use it whenever you want the true average growth rate over multiple periods.
Learn these first
Practice Geometric mean return
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide