To use negative numbers in a geometric mean calculation, you have to convert them to a proportion. For example, if you had an investment that returned -3%, you would use 1 - 0.03 = 0.97 as your value.

The geometric mean is best used to calculate the average of a series of data where each item has some relationship to the others. That’s because the formula takes into account serial correlation.

Per the chart, the correct 17-year average annualized return (or geometric mean) for the S&P 500 is 4.51%, whereas the incorrect arithmetic average return is the significantly higher 6.16%.

To find the mean of an ungrouped data, Step 1: Calculate the sum of all the values (x1 + x2 + x3 + … + xn) Step 2: Divide by the number of values provided (n) ...

The proper way to calculate average investment returns is with a geometric mean that takes into account the compounding effects of a series of volatile returns over time.

I’d never heard of “geometric mean” until today, and I’ve known how to calculate parallel resistances since I was a young pup. Report comment. Reply. Greg A says: ...

The geometric mean return, or CAGR, is the periodic return that, if earned and compounded every year on the beginning value, produces a future value equal to the ending value.