what is the geometric mean 
the geometric mean is the average of a set of products analysts portfolio managers and others commonly use the calculation of the geometric mean to determine the performance results of an investment or portfolio technically a geometric mean is defined as the nth root product of n numbers the geometric mean must be used when working with percentages which are derived from values while the standard arithmetic mean works with the values themselves investopedia michela buttignolunderstanding the geometric meanthe geometric mean sometimes referred to as compounded annual growth rate or time weighted rate of return is the average rate of return of a set of values calculated using the products of the terms what does that mean the geometric mean multiplies several values and sets them to the 1 nth power for various reasons the geometric mean is an important tool for calculating portfolio performance one of the most significant of those reasons is that it takes into account the effects of compounding for example the geometric mean calculation can be easily understood with simple numbers such as 2 and 8 if you multiply 2 and 8 then take the square root the power since there are only two numbers the answer is 4 however when there are many numbers it is more difficult to calculate unless a calculator or computer program is used the main benefit of using the geometric mean is that the actual amounts invested do not need to be known the calculation focuses entirely on the return figures themselves and presents an apples to apples comparison when comparing two investment options over more than one time period geometric mean will always be slightly smaller than the arithmetic mean which is a simple average 1formula and calculation with example