Geometric Mean

The geometric mean of a set of numbers is calculated by multiplying n positive numbers together and taking the nth root i.e. multiplying two numbers in a sequence and taking the square root, multiplying three numbers in a sequence and taking the cube root, four numbers and the fourth root etc. Calculating the geometric mean of investments over a period gives investors not just a basis for comparison but a notional smoothed average return. This can be useful where annual returns have been volatile (up and down over a period of years). The geometric mean can also be used to calculate smoothed portfolio returns.