What Is Portfolio Return?

Esther Ejim

In order to understand the meaning of portfolio return, it is first necessary to understand that a portfolio is a financial term used to describe the various investments that may be held at any one time by an investor. The investor may be a person, a company, a bank or some other type of financial institution. As such, a portfolio return is used to describe the returns from investments and serves as a sort of benchmark for assessing the profitability or lack of the same of the various investments. Such returns are usually measured periodically, with the exact times to be determined by the investor in question, meaning that they may be measured daily, monthly or even quarterly and so forth. The portfolio return or the calculation of the profitability of the investment is usually determined by a measurement of the monetary increases to the total value of the items in the portfolio at the end of the predetermined cycle.

Maximizing a return on an investment is the ability to assess current investment performance.
Maximizing a return on an investment is the ability to assess current investment performance.

There are various methods for the measurement of the portfolio return, including the time-weighed method. Under this method, the various investments are measured according to their own different characteristics, meaning that they will be assessed in order to determine the period in any cycle when they are most likely to be the most profitable, at which time the investment owner of the will carry out the assessment. For example, the owner of some stock in a phone company may know that the value of the company’s stock usually reaches a peak right after it releases a new product. Therefore, if the marketing blitz associated with the release generates a lot of interest that is translated to an increase in the stock value, the investor might decide to wait until then before carrying out any returns calculations. This is especially true if the company releases newer versions of its phone regularly, giving the investors a yardstick for predicting when to carry out the portfolio return calculations.

Another method for carrying out a portfolio return calculation is one that is the opposite of the time-weighed, known as the money-weighed method. Unlike in the time-weighed method, this method of portfolio return calculation is based on the time for the calculation remaining constant, giving the investor a steadily predictable time period for the calculation of the returns. For instance, if the predetermined period of returns calculation has been set at a quarterly period, then the investor will analyze the profits made within the set period after a couple of cycles with a view to discovering the investment profitability.

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