# What Rate of Return Should You Look At?

You can use this calculator to calculate the approximate annualized rate of return (geometric mean) from an arithmetic mean yearly rate of return and the variance of yearly rate of return.

What really matters is the annualized rate of return (geometric mean). But it is closely related to the arithmetic mean of yearly rates of return and variance of yearly rate of returns. Use this calculator to look at the impact of the variance of the yearly rate of returns on the annualized rate of return. It shows the importance of the benefit of diversification: reducing the variance of the yearly rates of return without reducing the arithmetic mean rate of return and thus increasing what you really should be concerned with - the annualized rate of return.