How to Calculate Expected Portfolio Return

As a well-informed investor, you naturally want to know the expected return of your portfolio—its anticipated performance and the overall profit or loss it's racking up. Expected return is just that: expected. It is not guaranteed, as it is based on historical returns and used to generate expectations, but it is not a prediction.

How to Calculate Expected Return

(Investopedia) To calculate the expected return of a portfolio, the investor needs to know the expected return of each of the securities in his portfolio as well as the overall weight of each security in the portfolio. That means the investor needs to add up the weighted averages of each security's anticipated rates of return (RoR).

An investor bases the estimates of the expected return of a security on the assumption that what has been proven true in the past will continue to be proven true in the future. The investor does not use a structural view of the market to calculate the expected return. Instead, he finds the weight of each security in the portfolio by taking the value of each of the securities and dividing it by the total value of the security.

Once the expected return of each security is known and the weight of each security has been calculated, an investor simply multiplies the expected return of each security by the weight of the same security and adds up the product of each security.

Formula for Expected Return

Let's say your portfolio contains three securities. The equation for its expected return is as follows:

Expected Return=WA×RA+WB×RB+WC×RC


WA = Weight of security A

RA = Expected return of security A

WB = Weight of security B

RB = Expected return of security B

WC = Weight of security C

RC = Expected return of security C​

Expected return is based on historical data, so investors should take into consideration the likelihood that each security will achieve its historical return given the current investing environment. Some assets, like bonds, are more likely to match their historical returns, while others, like stocks, may vary more widely from year to year.

Limitations of Expected Return

Since the market is volatile and unpredictable, calculating the expected return of a security is more guesswork than definite. So it could cause inaccuracy in the resultant expected return of the overall portfolio.

Expected returns do not paint a complete picture, so making investment decisions based on them alone can be dangerous. For instance, expected returns do not take volatility into account. Securities that range from high gains to losses from year to year can have the same expected returns as steady ones that stay in a lower range. And as expected returns are backward-looking, they do not factor in current market conditions, political and economic climate, legal and regulatory changes, and other elements.

63/66 Hatton Garden

Fifth Floor, Suite 23



United Kingdom

+44 (0) 203 633 6961

  • LinkedIn - White Circle
  • Twitter - White Circle
  • Facebook - White Circle

​This website should not be regarded as an offer or solicitation to conduct investment business. Past performance of investments is not necessarily indicative of future performance. The value of investments may fall as well as rise and the income from investments may fluctuate and is not guaranteed. Clients may not recover the amount invested. The investments mentioned on this website are not suitable for all types of investors. Investment advice should always be sought from a qualified investment adviser before any investment is made.

Trading and investing can be a challenging and potentially profitable opportunity for investors. However, before deciding to participate in the market, you should carefully consider your investment objectives, level of experience, and risk appetite. Most importantly, do not invest money you cannot afford to lose.

There is considerable exposure to risk in any investment transaction. Any transaction involving securities involves risks including, but not limited to, the potential for changing political and/or economic conditions that may substantially affect the price or liquidity of a currency. Investments in speculation may also be susceptible to sharp rises and falls as the relevant market values fluctuate. The leveraged possibility of trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. Not only may investors get back less than they invested, but in the case of higher risk strategies, investors may lose the entirety of their investment. It is for this reason that when speculating in markets it is advisable to use only risk capital.