Expected Annual Rate of Return Calculator
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Total Portfolio Value:
$0.00
Projected Annual Profit:
$0.00
Expected Annual Rate of Return:
0.00%
function calculateExpectedReturn() {
// Get inputs
var i1 = parseFloat(document.getElementById('inv1').value) || 0;
var r1 = parseFloat(document.getElementById('ret1').value) || 0;
var i2 = parseFloat(document.getElementById('inv2').value) || 0;
var r2 = parseFloat(document.getElementById('ret2').value) || 0;
var i3 = parseFloat(document.getElementById('inv3').value) || 0;
var r3 = parseFloat(document.getElementById('ret3').value) || 0;
var i4 = parseFloat(document.getElementById('inv4').value) || 0;
var r4 = parseFloat(document.getElementById('ret4').value) || 0;
var errorMsg = document.getElementById('errorMessage');
var resultDiv = document.getElementById('resultsSection');
// Calculate Total Investment
var totalInvestment = i1 + i2 + i3 + i4;
// Validation: Total investment must be > 0 to calculate a weighted percentage
if (totalInvestment <= 0) {
errorMsg.style.display = 'block';
resultDiv.style.display = 'none';
return;
}
errorMsg.style.display = 'none';
// Calculate Weighted Returns (Dollar Value of Returns)
var gain1 = i1 * (r1 / 100);
var gain2 = i2 * (r2 / 100);
var gain3 = i3 * (r3 / 100);
var gain4 = i4 * (r4 / 100);
var totalGain = gain1 + gain2 + gain3 + gain4;
// Calculate Expected Rate of Return (Weighted Average)
// Formula: (Total Expected Gain / Total Investment) * 100
var expectedRate = (totalGain / totalInvestment) * 100;
// Format Outputs
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
});
document.getElementById('totalPortfolioValue').innerHTML = formatter.format(totalInvestment);
document.getElementById('totalProjectedProfit').innerHTML = formatter.format(totalGain);
document.getElementById('expectedRateResult').innerHTML = expectedRate.toFixed(2) + "%";
// Show Results
resultDiv.style.display = 'block';
}
What is the Expected Annual Rate of Return?
The Expected Annual Rate of Return is a forward-looking financial metric used to estimate the profit or loss an investor anticipates on an investment portfolio over a specific period. Unlike historical returns, which tell you what has already happened, expected returns are calculated based on the probable outcomes of various assets within a portfolio.
For a diversified portfolio, this figure is calculated as the weighted average of the expected returns of the individual assets. This helps investors determine if their current asset allocation is sufficient to meet their future financial goals, such as retirement planning or buying a home.
How the Calculation Works
To calculate the expected rate of return for a portfolio, you must know the value of each asset (or its weight in the portfolio) and the projected return for that specific asset. The mathematical formula is:
E(Rp) = w1R1 + w2R2 + … + wnRn
- E(Rp): The expected return of the portfolio.
- wi: The weight of asset i (Asset Value / Total Portfolio Value).
- Ri: The expected return of asset i.
Example Scenario
Imagine you have a portfolio worth $20,000 allocated across three different assets. Here is how you would use the calculator above to find your expected annual rate of return:
| Asset Type |
Invested Amount |
Expected Return |
| Stock Fund (High Growth) |
$10,000 |
10% |
| Bond ETF (Stability) |
$6,000 |
4% |
| Cash/Savings (Safety) |
$4,000 |
1.5% |
Calculation:
1. Stock Gain: $10,000 × 0.10 = $1,000
2. Bond Gain: $6,000 × 0.04 = $240
3. Cash Gain: $4,000 × 0.015 = $60
Total Projected Gain: $1,300
Total Portfolio Value: $20,000
Expected Return: ($1,300 / $20,000) × 100 = 6.5%
Why This Metric Matters
Understanding your expected annual rate of return is critical for risk management. If your financial goal requires a 9% return but your current asset allocation only yields an expected 5%, you know you must either adjust your contributions, delay your timeline, or reallocate your portfolio to higher-risk, higher-reward assets. Conversely, if your expected return is significantly higher than required, you might be taking on unnecessary risk.