Portfolio Return is a term that describes gains and losses of the underlying portfolio. When we say “portfolio”, we mean investments that consist of several underlying assets and security types. The main idea behind this instrument is to identify how secure and profitable your portfolio is and if it meets preferred benchmarks. Additionally, with expected portfolio return, you can clarify if the investing strategy meets your core financial goals and objectives.

In this article, you will learn how to calculate portfolio return using a common formula with all of its elements explained in detail.
Expected Portfolio Return Explained
To get a well-balanced return, investors generally create diversified portfolios with several sets of assets. At the same time, some portfolios can contain a single set of assets depending on its type. It all depends on investors’ preferences, objectives and tactics. Sometimes they choose a blend of shares, bonds, stocks, and other instruments selected with a focus on various factors.
It does not actually matter what type of investment combination you have. There is a common portfolio return formula that will help to decide if it meets your goals or not.
How to Use Portfolio Return Formula
The formula goes like this:
Let’s have a closer look at each of its components:
- “W” – provides weights to each of your assets.
- “R” – is the expected return on the asset.
Here is a simple example: let’s say, an underlying asset account of 24% of your portfolio, which means it has a weight of 0.25. The sum of all assets must be equal to 100%, while the sum of all asset weights must be 1.