An investor is always in constant search of maximising their return, so one should constantly make sure to check their "portfolio expected return" to understand how much money can be gained or lost from a portfolio overall.
All you need to know to calculate the Expected Portfolio Return:
- Portfolio Expected Return formula & Example
- A word of caution about Portfolio Expected Return
- Simple steps to calculate the Portfolio Expected Return in Diversiview.
What is the Portfolio Expected Return?
Do you know if your investments are producing profit or losses?
While it is true that most investments have a degree of uncertainty and one can never guarantee a future return, it is possible to calculate the expected return of each individual security within a portfolio.
Then, you can calculate the Portfolio Expected Return as a weighted average of the expected return of individual securities.
The weights represent the proportions you have invested in each asset in the portfolio.
Expected portfolio Return, Formula & Example:
Expected Return = (WA x RA) + (WB x RB) + (WC x RC)
The following are the main variables in the formula. Knowing them will make it easier for you to calculate the return of your portfolio.
WA = Weight of asset A
RA = Expected return of asset A
WB = Weight of asset B
RB = Expected return of asset B
WC = Weight of asset C
RC = Expected return of asset C
Expected Return of an individual asset is the rate of return you expect to gain or lose over a given period, e.g. one year.
Using the formula above, we can take as an example the Following portfolio composition:
This portfolio compounds three Stocks which are the following:
- CBA : Expected return:15% | weight: 50%
- TLS: Expected return: 25% | Weight: 25%
- XRO: Expected return 25% | Weight: 25%
*Securities for exemplification purposes only*
A word of caution about the Portfolio Expected Return
As mentioned above, it is important to keep in mind that the calculation of the expected return of an individual asset is made based on historical data, this information being closer to an informed guess than a prediction.
As an investor, you should assume that the calculation of this expected return is a picture of what your asset return may be, but it is not necessarily an accurate picture due to the inherently uncertain of the markets. However, it is an essential indicator that helps investors make key decisions about whether to invest in new stocks or keep their existing investments.
Simple steps to calculate the Expected Portfolio Return
Calculating the expected portfolio return requires a lot of detailed data, precision, and time.
To calculate the expected return of each investment you need historical share price data, adjusted for dividends and other corporate action. You then need to calculate a geometric (compound) average return for each security. You then need to average all of those using the weights of the securities, to obtain the Expected Portfolio Return.
A lot of work, especially if you have a very busy schedule. Moreover, suppose you have a fairly large portfolio and want to add more listed securities to your portfolio in the future. In that case, the calculation becomes more and more complicated, even if you are using Excel.
Diversiview is an application that helps you do all those calculations so you can get important investment indicators, including the Expected Portfolio Return, in seconds.
Let's see how you can calculate in Diversiview in these 3 simple steps:
1. Go to Diversiview.online and enter your securities (and weights if known).
2. Fill up your information to receive the results in your email.
3. Check your email with your results.
Check out the video below for some more explanations about Portfolio Expected Return.
Continue using Diversiview to calculate your Portfolio Expected Return as often as you need. Unless you know this information, you cannot know whether your investments efforts match your goals.
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Disclaimer: LENSELLDiversiview® is a trademark of LENSELL GROUP PTY LTD. LENSELL accepts no responsibility for any claim, loss or damage as a result of using the information on this website. The website content is provided "as is" for information purposes only, it should not be considered financial advice nor solely relied upon for making any trading decisions. Please consult a finance professional before buying or selling any securities or before making any other changes to your portfolio.