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Different investment types offer different risk-return profiles. Understanding expected returns and calculating your own portfolio allocation is fundamental to financial planning.
The Formula
Expected Portfolio Return = ฮฃ(Weight ร Expected Return) for each asset class
Standard formula used by professionals worldwide
Worked Example
Step-by-step
60% stocks (10%) + 30% bonds (4%) + 10% cash (2%) โ Expected = 6%+1.2%+0.2% = 7.4%
Key Points
- Accuracy: Results are as accurate as the inputs you provide
- Units: Always use consistent units throughout your calculation
- Privacy: All calculations on CalcHub Pro run in your browser โ nothing is sent to any server
Frequently Asked Questions
What is the equity risk premium?
Extra return of stocks over risk-free rate (bonds). Historically 4-6% per year.
What is portfolio rebalancing?
Periodically selling outperformers and buying underperformers to maintain target allocation.
How much volatility is normal in stocks?
Annual standard deviation of 15-20% is normal. Individual stocks can be 30-50%.
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