Geometric

Geometric and arithmetic average returns are two methods used to calculate historical investment returns. Geometric average return provides the actual earned per year on average while the arithmetic average return tells what was earned in a typical year. When it comes to forecasting future returns, there is confusion about which method to use. Shorter-term forecasts are closer to the geometric average return while longer-term forecasts are closer to the arithmetic average return. To combine these averages for forecast calculations, Bruin"s formula can be used.