A. Many investors tend to calculate the multi-year investment's return by looking at each year's return, then do an arithmetic mean calculation. Unfortunately this is the wrong method. Geometric mean is the right way to calculate a multi-year investment's return. See how the arithmetic and geometric means could differ from the following examples:
Step 1. Get each year's % return, e.g. 10%, -15%, etc.
Step 2. Add 1 to each of the annual return, e.g. 1.1, 0.85, etc.
Step 3. In Excel, use Geomean function to calculate the numbers obtained from step 2. That's the geometric mean return!