How To Calculate Portfolio Return In Excel [4 Simple Steps]

The portfolio return is anticipated in exchange for an investment and these returns are influenced by the type of investment, the timing, and the risks involved.

The high volatility of returns, as a result, makes it challenging for investors to prepare for their financial future. 

Because estimating portfolio returns can be challenging at times, this article contains a step-by-step procedure n how to calculate portfolio return in excel.

This article also provides key definitions of portfolio returns and other related information.

What Is Portfolio Return?

The gain or loss that a portfolio of different sorts of investments experiences is referred to as the portfolio return. 

The stated objectives of the investment strategy and the risk tolerance of the target clients for the portfolio are used to create returns for each portfolio.

Based on their financial objectives and risk tolerance, investors will select assets like stocks, bonds, ETFs, and real estate to maximize their overall returns.  

Depending on the included assets, specific benchmarks are utilized for examining portfolio return. 

To make sure they are accomplishing their financial objectives, the majority of investors calculate their portfolio returns yearly. 

Choosing investment kinds that move in different directions, such as stocks and bonds, is a frequent technique when examining portfolio returns.  

What Is The Portfolio Return Formula?

The portfolio weight of each equity must be multiplied by the predicted return in addition to a few significant issues. 

The formula that follows examines it.

Rp=ni=1 wi ri.

W: The relative importance of each asset, or how much of your portfolio it represents.

R: This stands for an asset’s return, which can be determined based on the type of asset.

Concept Of Calculating Portfolio Return

If you are aware of or can anticipate the expected returns on each investment in your portfolio, you can also use Microsoft Excel to get the portfolio’s total rate of return. 

If you don’t have Microsoft Excel, you can add the portfolio’s anticipated return using a straightforward formula.

The calculation of the portfolio return is simple and is as follows:

• Obtain the return on each asset that was invested with money. 

Take the case of stock investment, for instance, the entire return must be computed, taking into account intermediate cash flows, which are dividend stocks.

• Determine the weights of each asset that is invested with money. 

Calculate the investment in that asset by dividing the total funding to calculate this amount.

• Up until each asset has been valued, the third process will be repeated. 

The weight determined in step 2 and the returning product created in step 1 should be combined.

To determine the portfolio return, multiply the returns of each asset by the asset’s weight class.

4 Simple Steps To Calculate Portfolio Return In Excel

STEP1: Create The Base Of Calculation

Rows A1 through F1 should be filled up using the data labels listed below:

Portfolio Value

Investment Name

Investment Value

Investment Return Rate

Investment Weight

Expected Return

STEP2: Enter Base Information

Put the portfolio value in cell A2 and list the names of the investments in your portfolio in column B.

Then enter the total current value of all of your investments in column C, so that Column D will provide the projected return rates for each investment.

STEP3: Calculate Portfolio Investment Weight

You must divide Investment Value by Portfolio Value to determine the weight of the initial investment. 

Then divide the result by the value in cell A2 to determine the portfolio weight of each investment by repeating the computation in succeeding cells.

Enter the equation in cell E2: = (C2 / A2).

STEP4: Calculate Portfolio Expected Return

Use cell F2’s formula =([D2*E2] + [D3*E3] + [D4*E4]) to determine the total expected portfolio return.

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Excel Portfolio Return Calculation Example

In cell A2, enter $100,000 for the total portfolio value after labeling your data in the first row.

The names of the three investments should then be entered in cells B2 through B4 with the associated amounts ($55,000, $30,000, and $15,000).

Fill in cells D2 through D4 with the correct coupon rates.

In cells E2, enter the formula = (C2 / A2) to obtain the investment weights of each.

Last but not least, enter the following formula in cell F2 to get your portfolio’s predicted annual return: =([D2*E2]+[D3*E3]+[D4*E4]).

In this situation, the expected outcome is:

= ([0.55 * 0.035] + [0.15 * 0.07]+ [0.3 * 0.046])

= 0.0175 + 0.0105+ 0.0138

= 0.0418, or 4.2%

Key Definitions

Portfolio

A portfolio is a collection of assets that an investor owns, such as stocks and bonds.

Portfolio Weight

Portfolio weight is the portion of an asset’s entire value that is invested in a portfolio.

Expected Return

The average return on risky assets anticipated in the future is the expected return.

The total of each asset’s projected return multiplied by its weight produces the portfolio’s expected return.

(Wi * Ri) = Rp

I = 1, 2, 3, etc.

Wi: Specifies the asset’s related weight I

Ri: The return of the asset.

Market Value of an Asset / Market Value of Portfolio is used to determine an asset’s weight.

Variance

The covariance between each asset and its covariance determines the variance of a portfolio’s return. 

Portfolio variance is a gauge of risk; the higher the variance, the greater the risk involved. 

Typically, an investor chooses negative covariance assets like stocks and bonds to lower risk.

Portfolio Standards Deviation

Portfolio standard deviation is the portfolio variance’s square root. It also serves as a gauge for a portfolio’s level of risk.

What Should My Portfolio Return Be?

For long-term stock market investments, the majority of investors see an average annual rate of return of 10% or above to be good. 

However, there will be some years with lower returns or even returns that are negative and in other years, returns will be significantly higher.

What Is A Good Portfolio Return?

This question cannot be answered in isolation, as a good portfolio return is determined by several factors. 

The most significant aspect to take into account when determining a good portfolio return is your financial need.

When figuring out what a decent rate of return should be, it’s also essential to look at the investments you’re making. 

Is an annual return of 8% considered to be reasonable? The answer is yes if you’re investing in government bonds, which shouldn’t be as hazardous as equities.

However, an annual return of 8% on money invested in a small-cap company would not be favorable because small-cap companies are often linked with hazardous stocks.

Conclusion

ROI, return on investment, or profitable return is a commonly used profitability metric that contrasts the revenue generated by an asset with its costs.  

This article has provided lots of information about profitable returns so you would have a general idea of the kind of return you may anticipate before making any investments.