Average Return Explained: Guide for Australian Investors in 2025

Every investor wants to know: “How much can I expect to earn?” The answer starts with understanding average return. In 2025, as market dynamics and policy updates reshape the financial landscape, getting to grips with this key metric is more important than ever for Australians looking to grow their wealth.

What Is Average Return? The Backbone of Investment Decisions

Average return, simply put, is the mean amount an investment earns over a set period. It gives you a snapshot of performance—whether you’re looking at shares, superannuation, property, or ETFs. But not all averages are created equal. In finance, you’ll encounter two main types:

• Arithmetic Average Return: The simple mean of yearly returns. It’s quick but doesn’t factor in compounding.

• Geometric (Compound) Average Return: Reflects the effect of gains and losses compounding over time. This is the figure most financial planners and managed funds use, as it gives a more realistic picture of long-term performance.

Let’s say you invested in an ASX200 index fund. If it returned 10% one year, -5% the next, and 15% the third year, the arithmetic average would be (10 + (-5) + 15) / 3 = 6.67%. But the geometric average, which accounts for the negative year and compounding, would be slightly lower. This matters when projecting your wealth over decades.

2025 Updates: How Market Shifts and Policy Changes Affect Average Returns

This year, several factors are influencing average returns for Australian investors:

• RBA Rate Movements: The Reserve Bank of Australia’s cash rate has remained steady at 4.35% through the first half of 2025, maintaining higher-than-average deposit rates but putting pressure on borrowing and property growth.

• Superannuation Reforms: The government’s 2025 superannuation tweaks—raising the super guarantee to 12% and capping concessional contributions—are expected to nudge average long-term super returns as funds adjust asset allocations.

• Volatile Global Markets: Ongoing geopolitical tensions and tech sector volatility have made annual returns more unpredictable. Australian shares have averaged around 7.8% p.a. over the past decade, but the 2022-2024 rollercoaster means recent five-year averages are closer to 6.2%.

• Property Markets: After the 2023-2024 price rebound, CoreLogic data shows national dwelling values are growing at a slower 3.5% p.a. in 2025—lower than the decade average of 5.5%.

Real-world example: If you’re comparing managed funds, look at their 5- and 10-year geometric average returns. Many Aussie balanced funds are reporting 5.5–6.5% p.a. averages for the last five years, reflecting a more conservative outlook in the current climate.

Why Average Return Isn’t the Whole Story

While average return is a vital yardstick, it has its pitfalls:

• Doesn’t Show Volatility: Two funds might have the same average return, but one could have wild swings while the other is steady. That’s where ‘standard deviation’ and ‘risk-adjusted return’ come in.

• Sequence Matters: For retirees drawing down super, the sequence of returns can make a huge difference. A big loss early in retirement hurts more than the same loss later.

• Inflation Impact: With inflation trending at 3.4% in 2025, your real (inflation-adjusted) return is what counts. That 6% average return shrinks to just 2.6% after inflation.

Smart investors use average return as a starting point, then dig deeper. Compare geometric averages, look at volatility, and always consider fees—which can erode your true returns over time.

How to Use Average Return in Your 2025 Investment Strategy

Here are practical ways to put average return to work for you this year:

• Set Realistic Expectations: Use up-to-date averages for the asset class you’re considering. Don’t rely on pre-2020 bull market figures.

• Review Fund Fact Sheets: Look for 5- and 10-year geometric averages and compare them to the relevant index or benchmark.

• Factor in Fees: A fund with a 7% average return and 1.5% in annual fees delivers less than one with a 6.5% return and 0.3% fees.

• Diversify: Average return helps you blend assets for a smoother ride—mixing shares, bonds, and property can stabilise your portfolio.

• Rebalance Regularly: 2025’s market swings mean it’s wise to review your portfolio and rebalance to maintain your target risk and return profile.

Conclusion: Make Average Return Work for You in 2025

Average return is a powerful guidepost, but in Australia’s shifting 2025 financial landscape, it pays to dig deeper. Understand the numbers behind the averages, stay alert to policy and market changes, and make informed decisions to maximise your wealth over time.