How to calculate portfolio return in excel [4 Simple Steps]

While managing a diversified portfolio, you may have come across, How to calculate portfolio return in excel. Estimating portfolio returns can be tricky sometimes; that’s why we have put together a step by step process to calculate portfolio return in excel.

In return for their investment, a reasonable return is expected. The sort of investment, the timing, and the dangers involved with it all influence the returns.

As a result, returns can be highly volatile, making it difficult for investors to plan for their financial future. So, what does a decent return on investment entail, and how? Investors must have reasonable expectations for the sort of return they might expect. 

This article will explain what constitutes a decent return on investment and which assets may assist a person in achieving their financial objectives.

Before diving in, you should know what portfolio return is?

What Is Portfolio Return?

The return on a portfolio refers to the gain or loss a portfolio of various types of investments realizes. Portfolios are designed to provide returns based on the investment strategy’s stated objectives and the risk tolerance of the portfolio’s target clients.

Concept of calculating Portfolio Return

Suppose you know or can predict the projected returns on the individual investments in your portfolio. In this case, you can use Microsoft Excel to compute the portfolio’s total rate of return. You may add the portfolio’s projected return with a simple formula if you don’t have Excel.

Step by Step Process of Calculating Total Expected Return in Excel. The portfolio return is calculated in a straightforward manner that takes minimal thought.

1. Get the return on each asset in which the money was placed. For example, suppose an investor has made a stock investment. In that case, the total return must be calculated, including interim cash flows, which would be dividend inequities.
2. Calculate the individual asset weights in which money is invested. Divide the amount invested in that asset by the total amount funded in the fund to arrive at this figure.
3. Combine the returned product produced in step 1 with the weight derived in step 2.
4. The third step will be continued until all of the assets have been calculated. Finally, we must multiply all individual asset returns by their weight class to calculate the portfolio return.

How to calculate Portfolio return in excel

1. Create the base of calculation.

Fill out Rows A1 through F1 with the following data labels as respected:

1. Portfolio Value
2. Investment Name
3. Investment Value
4. Investment Return Rate
5. Investment Weight
6. Expected Return

2. Enter base information

1. Fill in cell A2 with the portfolio value.
2. Indicate in column B the names of the investments in your portfolio.
3. In column C, write the total current value of each of your investments.
4. Enter the estimated return rates of each investment in column D.

3. Calculate Portfolio Investment Weight

To calculate the weight of the initial investment, Investment Value, you need to divide Investment Value with Portfolio Value. To compute the portfolio weight of each investment, repeat the calculation in successive cells, dividing by the value in cell A2

Put the formula = (C2 / A2) in cell E2.

4. Calculate Portfolio Expected return

To calculate the total expected return, but the formula =([D2*E2] + [D3*E3] + [D4*E4]) in cell F2.

Example of calculating portfolio return in excel

After labeling your information in the first row, go to cell A2 and enter $100,000 for the entire portfolio value. 

Then, in cells B2 through B4, write the names of the three investments, Enter $45,000, $30,000, and $25,000, correspondingly.

Enter the corresponding coupon rates in cells D2 through D4, as shown above.

Enter the formulae = (C2 / A2) in cells E2 to get investment weights of 0.45, respectively.

Finally, in cell F2, insert the formula =([D2*E2]+[D3*E3]+[D4*E4]) to get your portfolio’s yearly anticipated return.

The expected result in this case is:

1. = ([0.45 * 0.035] + [0.25 * 0.07]+ [0.3 * 0.046] )
2. = 0.01575 + 0.0175+ 0.0138
3. = .04705, or 4.7%

Key definitions

Portfolio: A portfolio is a group of assets such as stocks and bonds held by an investor.

Portfolio weight: a portfolio weight is the percentage of a portfolio’s total value invested in a particular asset. 

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

Variance: variance is a standard measure of volatility. 

What is the portfolio return formula?

We have to multiply the portfolio weight individual equity by its expected return and some big problems. The formula below looks at it.
Rp = ∑ni=1 wi ri

What should my portfolio return be?

Most investors consider an average yearly rate of return of 10% or above a respectable ROI for long-term stock market investments. Keep in mind, however, that this is average.
There will be years with reduced returns or even negative returns. Returns will be much higher in other years.

What is a good portfolio return ?

This question can’t be answered individually, and Several criteria determine a “good” ROI. Your financial necessity is the most crucial factor to consider when calculating a decent ROI.

Assume a young couple is putting money aside to pay for their newborn child’s college fees. For them, a decent return on investment allows their original and recurring contributions to grow to the point that they can pay for college expenditures 18 years down the line.

The idea of a decent ROI for this young family would be different from that of a senior looking to augment their income. A good return on investment for a retiree creates enough recurrent income to allow them to live comfortably.
Of all, just as one retiree’s concept of comfortable living differs from another’s, so do their definitions of a satisfactory return on investment.

It’s also crucial to examine what you’re investing in when determining a reasonable rate of return. From 1926 through 2019, the following table illustrates compound annual growth rates (CAGRs) for many common investment assets, assuming that all earnings are reinvested.

These various historical rates of return highlight an important fact to grasp: the bigger the risk of an investment, the larger the expected return. Is an average yearly return of 8% an acceptable rate of return? If you’re investing in government bonds, which shouldn’t be as risky as equities, the answer is yes.

However, a return of 8% on money invested in a small-cap company over an extended period would not be considered reasonable for most investors.
Since risky stocks are associated with small-cap companies.

Asset Type	Compound Annual Growth Rate (CAGR)
Small-cap stocks	11.9%
Large-cap stocks	10.2%
Government bonds	5.5%
Treasury bills	3.3%

Conclusion

When you invest, you have one goal: to make money. And every investor wishes to make the most profit possible. That’s why, before you invest in anything, you should have a rough notion of what type of return you may expect.

Return on investment, or ROI, is a frequently used profitability statistic that compares the amount of profit generated by an asset to its expenses. The return on investment (ROI) is a percentage that may evaluate individual investments or compete for investment possibilities.