To calculate your portfolio return, subtract the beginning value from the ending value, add any dividends and interest received, and divide by the beginning value. Multiply by 100 to express it as a percentage. If your portfolio started the year at $50,000, paid $600 in dividends, and finished at $54,000, your return is ($54,000 − $50,000 + $600) ÷ $50,000 = 9.2%. That formula works cleanly when you didn’t add or withdraw money. Once cash moves in or out, you need a method that separates your deposits from actual investment performance, and if you want to compare across different time spans you have to annualize. The sections below walk through each situation.
What You Need Before You Start
Every return calculation uses four numbers, all of which appear on your monthly or quarterly brokerage statement:
- The beginning value: the total market price of your holdings on the first day of the period.
- The ending value: the total market price on the last day.
- Net contributions: deposits minus withdrawals during the period.
- Investment income: dividends and interest credited to the account.
One quick clarification before you start pulling figures. Your 1099-B shows cost basis, which is what you paid for securities you sold.1Internal Revenue Service. Instructions for Form 1099-B Cost basis matters for taxes but is not the same as return. Return measures how much your money grew; cost basis measures what you originally spent.
The Basic Formula When Nothing Moved In or Out
If you didn’t deposit or withdraw during the measurement period, use the holding period return:
Holding Period Return = (Ending Value − Beginning Value + Income) ÷ Beginning Value
Using the example above, a $50,000 account that paid $600 in dividends and finished at $54,000 returned 9.2%. The dividend counts whether you spent it or reinvested it, because it represents value the portfolio generated. For an account you simply let ride, this is the whole calculation.
Adjusting When You Deposited or Withdrew
Most people add money through the year, or pull some out. That creates a question the basic formula can’t answer: did the portfolio grow because the market rose, or because you deposited $20,000 in March? Two methods handle this differently, and they answer different questions.
Time-Weighted Return
Time-weighted return isolates investment performance from your cash flow decisions. Every time money moves in or out, you close one sub-period and open a new one. You calculate the return for each sub-period on its own, then link them by multiplying.
If the portfolio returned 3% in the first sub-period and 2% in the second, the linked return is (1.03 × 1.02) − 1 = 5.06%. A big deposit right before a rally doesn’t inflate the figure, because every sub-period gets equal weight regardless of how much money sat in the account.
This is the number to use if you want to judge the strategy itself, or compare one manager or fund against another. The Global Investment Performance Standards require time-weighted returns for most portfolio reporting for exactly that reason.2CFA Institute. Overview of the Global Investment Performance Standards
Money-Weighted Return
Money-weighted return behaves like an internal rate of return across every cash flow. It finds the single discount rate that makes the present value of all your deposits, withdrawals, and the ending balance equal zero. Periods when more money was in the account weigh more heavily.
If you dropped in a lump sum right before a strong quarter, your money-weighted return will beat your time-weighted return. If your timing was bad, it will trail. This is the better number for the personal question: how did my actual dollars do?
The Modified Dietz Shortcut
A true time-weighted return requires knowing your portfolio’s value on every day cash moved. Most individual investors don’t have that. The Modified Dietz method approximates it by weighting each cash flow by how long it was in the portfolio during the period. A deposit made in the first month counts for more than one made in the last. For home-office calculations, Modified Dietz gets close enough to a true time-weighted return without daily valuations.
Converting to an Annual Figure
A 12% return over three years and a 5% return over six months aren’t comparable until you put them on the same yearly footing. Annualizing does that, and the formula handles compounding:
Annualized Return = (1 + Total Return)^(1 / Number of Years) − 1
This is also called the compound annual growth rate, or CAGR. A portfolio that grew from $10,000 to $15,000 over five years has a total return of 50% and a CAGR of (1.50)^(1/5) − 1 = 8.45% per year. It’s not simply 50% ÷ 5 = 10%. That arithmetic average ignores compounding and overstates how fast the money grew.
The formula works the other direction too. A 5% return over six months annualizes to (1.05)^(12/6) − 1 = 10.25%, not 10%, because the second half of the year would be earning on top of the first half. Be careful stretching short periods this way. A hot three-month stretch annualized to 40% does not mean you will earn 40% for the year.
Subtracting Fees to Get What You Actually Kept
The return your investments produce before costs is your gross return. Your net return is what’s left after fees, and the gap compounds. Fees usually come from three places:
- Fund expense ratios. Mutual funds and ETFs deduct operating costs from the fund’s assets before returns reach you. An index equity ETF typically charges around 0.05% to 0.14% a year; an actively managed equity fund averages closer to 0.44% to 0.64%.
- Advisory fees. A financial advisor usually charges 0.5% to 1.5% of assets under management per year, drawn from the account quarterly.
- Trading costs. Commissions and bid-ask spreads chip at your effective return, though most major brokerages have eliminated commissions on stock and ETF trades.
To get net return, subtract total fees from gross. A 9% gross return with 0.50% in fund expenses and 1.00% in advisory fees nets out around 7.5%. Over twenty years, a 1.5% annual drag turns into a dramatically smaller ending balance. When you measure your portfolio, use what you actually kept.
Adjusting for Inflation
A 7% nominal return looks solid until inflation claims 3% of it. Real return measures the gain in purchasing power, which is what matters for goals like retirement.
The approximation most people use is:
Real Return ≈ Nominal Return − Inflation Rate
The precise version is (1 + Nominal Return) ÷ (1 + Inflation Rate) − 1, but the shortcut works when both numbers are small. An 8% nominal return against the CBO’s 2.7% inflation projection for 2026 leaves roughly a 5.3% real return.3Congressional Budget Office. The Budget and Economic Outlook: 2026 to 2036 A 6% nominal return during a stretch of 4% inflation barely moved your real wealth. Calculate both numbers, especially when comparing across periods where inflation differed.
Comparing Against a Benchmark
A return number on its own tells you little. Earning 7% looks fine until you learn the broad market returned 15% over the same stretch. A benchmark comparison tells you whether your strategy added value or just moved with the tide.
Pick a benchmark that matches what you actually hold. A portfolio of large U.S. stocks belongs against a large-cap U.S. index like the S&P 500. A bond-heavy portfolio measured against an equity index will always look weak, not because it performed poorly but because the yardstick is wrong. For a mixed portfolio, you can build a blended benchmark that weights several indexes to match your allocation.
Compare over a full market cycle rather than a flattering window. A strategy that trails during a bull market might hold up well during a downturn, and you won’t see that pattern unless the timeframe is long enough.
A Note on Risk-Adjusted Return
Raw return says nothing about the risk you took to earn it. A 12% return from a diversified bond portfolio is not the same accomplishment as 12% from one volatile stock. The Sharpe ratio captures this by measuring excess return per unit of risk:
Sharpe Ratio = (Portfolio Return − Risk-Free Rate) ÷ Standard Deviation of Portfolio Returns
The risk-free rate is usually the yield on a short-term Treasury bill. Standard deviation measures how much the returns swung around their average. A higher ratio means more return per unit of volatility you lived through. Above 1.0 is generally considered strong; below 0.5 suggests the risk wasn’t paying off. If you are deciding between two portfolios with similar returns, the one with the higher Sharpe ratio is usually easier to actually stick with.