Monthly Rate of Return Calculator
=RRI(Months, StartValue, EndValue)or
=(EndValue/StartValue)^(1/Months) - 1
How to Calculate Monthly Rate of Return in Excel (Full Guide)
Calculating the monthly rate of return is essential for investors looking to track the performance of a portfolio, stock, or business asset over specific intervals. Whether you are analyzing a short-term investment or breaking down a long-term gain into monthly metrics, understanding the correct formulas is key.
This guide explains the mathematics behind the calculation, provides a ready-to-use web calculator (above), and details exactly how to implement these calculations in Microsoft Excel.
The Logic: Simple vs. Compound Monthly Return
Before jumping into Excel formulas, it is crucial to distinguish between two types of returns:
- Simple Monthly Return: Used when you just want to know the percentage change between the start and end of a single month.
- Compound Monthly Growth Rate (CMGR): Used when you have a start value and end value covering multiple months, and you want to know the average monthly growth rate that would compound to that final value.
The calculator above uses the CMGR method, as this is the standard for determining performance over time.
Method 1: Manual Excel Formula
To calculate the average monthly compounded rate of return manually in Excel, you use the geometric mean formula. This assumes you know the Beginning Value, the Ending Value, and the Number of Months.
= (Ending Value / Beginning Value) ^ (1 / Number of Months) – 1
Example Scenario
Imagine you invested $10,000, and after 12 months, your portfolio is worth $12,500.
- Cell A1 (Start Value): 10000
- Cell B1 (End Value): 12500
- Cell C1 (Months): 12
The Excel formula in cell D1 would be:
After entering the formula, format the cell as a Percentage. The result should be approximately 1.88% per month.
Method 2: Using the RRI Function
Excel has a built-in function specifically designed for calculating the equivalent interest rate for the growth of an investment. This is often cleaner than typing out the manual exponential formula.
Syntax: =RRI(nper, pv, fv)
- nper: The number of periods (months).
- pv: Present value (Start Value).
- fv: Future value (End Value).
Using the previous example data:
This will yield the exact same result: 1.88%.
Method 3: Calculating Return from Monthly Data Points
If you have a column of monthly values and you want to calculate the return for each individual month, you use simple division.
| Row | A (Month) | B (Portfolio Value) | C (Monthly Return Formula) |
|---|---|---|---|
| 1 | January | $10,000 | – |
| 2 | February | $10,500 | =(B2-B1)/B1 |
| 3 | March | $10,200 | =(B3-B2)/B2 |
This method shows volatility month-to-month, whereas the CMGR method smooths out the return into a single average rate.
Why Does "Months" Matter?
When calculating returns, time is the denominator of success. A 20% total return is fantastic if it happens in 2 months, but mediocre if it takes 5 years.
By converting your total return into a monthly rate using the ^(1/months) exponent, you normalize the data. This allows you to compare investments of different durations on an apples-to-apples basis.
Annualizing Your Monthly Rate
Once you have calculated the Monthly Rate of Return in Excel, you may want to convert it to an Annualized Rate (CAGR) to compare it with standard market indices like the S&P 500.
Excel Formula to Annualize a Monthly Rate (Cell D1):
If your monthly rate is 1.88%, your annualized rate would be approximately 25%, illustrating the power of compounding.
Frequently Asked Questions
Why is my result 0 in Excel?
If you are not formatting your cell as a "Percentage," a small decimal like 0.0188 might be rounded down to 0 if the cell format is set to "Number" with no decimal places. Always change the cell format to Percentage.
Can I use the RATE function?
Yes, the =RATE() function can also be used, though it is typically reserved for annuities with regular payments. For a lump sum growth calculation: =RATE(months, 0, -StartValue, EndValue). Note that the Start Value must be negative to represent cash outflow.
How do I handle negative returns?
The manual formula (End/Start)^(1/n)-1 works perfectly for negative returns (losses). However, if the Ending Value is negative (which is impossible for stock prices but possible for other metrics), the formula will return an error.