How to calculate a return for a portfolio

It helps very much being able to calculate the return amounts for an investment portfolio. The following examples illustrate the steps you need to follow to determine such return. A portfolio has 5 stocks with the following return.
  • Stock A  has a return of   7.5%
  • Stock B  has a return of   6.2%
  • Stock C & D  each one has a return of  2.0%
  • Stock E  has a return of   -3.1%

Stocks return is taken into account and then added up to get the average return weight the portfolio has.

Stock  Weight  Rate   Average Return Weight

A  1/5  X 0.075  = 1.5%

B  1/5  X 0.062  = 1.24%

C & D  2/5  X 0.02  = 0.8%

E  1/5  X -0.031  = -0.62%   

The average return weight  of the portfolio is 2.92%.

To be able to compare the return of your portfolio with the market return you need to be able to determine its exact return rate. This process could not be simple if you add funds to buy titles and then withdraw these funds during a waiting period.

You may remember that some years ago the Beardstown Ladies Investment Club had problems to calculate its exact returns. Members claimed having earned an annual average return within a 20% range for an extended lapse of time, profiting more than the market’s annual average to later be aware that they had incorrectly calculated the returns. As thought an audit taken place by a re-known accountant firm showed that the annual average return were in simple digits during the same period.

For a portfolio in which you have not added nor retired any fund a simple period of retention is enough:

Final Balance – Initial Balance

Retention of return period =      Initial Balance