1. Quantitative Methods2. Measuring Portfolio Returns3. Analyzing Your Client's Financial Profile4. Special Issues for Retirement Plans5. Portfolio Risks

Measuring Portfolio Returns
There are a number of ways to calculate the investment return of an account. Some of these (real return and risk-adjusted return) were discussed in the Quantitative Methods section . You will not be tested on the actual formulas, so they are not included here (other than those provided for clarity). In this section we'll focus on return measures such as the following:

• Return on investment - This is the classic measure of performance, taking into account all cash flows (including dividends, interest, return of principal, and capital gains). To calculate, simply divide the sum of all cash flows by the number of years the investment is held, and then divide that amount by the original amount invested.

• Holding period return - Refers to the return for the period of time the investment was actually held. This can be more meaningful than an annualized rate of return, particularly for investments held short term.

The standard deviation of returns depends on the holding period, since stock returns are more volatile over shorter periods. As a result:
• the shorter the holding period, the greater the variability of the return;

• the longer the holding period, the smaller the variability of the return.

• Annualized return- Also referred to as average return, this expresses the geometric rate of return of a portfolio over any given period into an annual basis - in other words, it provides the average annual return per year over that period.

• Risk-free rate of return - The current rate for 90 day Treasury bills is typically used in calculations such as risk-adjusted return and the Sharpe ratio.

• Total return - This incorporates the rate of return from all sources, including appreciation (or depreciation), dividends and interest.
Other Terms

Related Articles
1. Investing

Risk-adjusted return is a measurement of risk for an investment or portfolio.
2. Investing

### More Ways to Evaluate Portfolio Performance

The Jensen measure is another tool investors use to include risk when measuring portfolio performance.

4. Investing

### How to Calculate Risk Premium

Think of a risk premium as a form of hazard pay for risky investments.
5. Insights

### What's a Return of Capital?

A return of capital is an investment return that is not considered income.
6. Investing

### What is a Return?

A return is the gain or loss a security generates over a period of time.
7. Investing

### What Returns Can You Expect in the Stock Market?

Looking at the historical returns of the stock market helps you understand current stock returns.
8. Investing

### A Market Prediction From a Hesitant Predictor

It is much better to focus on investment planning than market predictions.
9. Investing

### Mitigating Downside With the Sortino Ratio

Differentiate between good and bad volatility with the Sortino ratio.
10. Investing

### How to Evaluate Stock Performance

Learn how to evaluate stock performance. While what you look for in a stock could be different from another person, the way you analyze performance is the same.