How to calculate a monthly return on investment

Wondering how your investments are performing? Use these simple methods to calculate the returns on your portfolio each month.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

Long-term investors know that it's important to keep perspective on the fluctuations of the financial markets. Nevertheless, looking at monthly returns on investment can give you important information about whether you're doing better or worse than the overall market, and if you're systematically underperforming, you can take steps to adopt better investing strategies.

The Calculation of Monthly Returns on Investment

In order to calculate your monthly return, you'll need to know three things. By looking at your monthly statement, you should be able to determine your starting portfolio balance, your ending portfolio balance, and any net deposits or withdrawals that affected your account balance during the month.

Once you have those figures, the calculation is simple. Take the ending balance, and either add back net withdrawals or subtract out net deposits during the period. Then divide the result by the starting balance at the beginning of the month. Subtract 1 and multiply by 100, and you'll have the percentage gain or loss that corresponds to your monthly return.

Note that most of the time, monthly returns will be relatively small. That's because most people are used to seeing annual returns rather than monthly ones. If you want to know the corresponding annual return, then there are two things you can do. The simple, but less accurate, way is to multiply the monthly return by 12. The technically correct way is to add 1 to the monthly return, raise the result to the 12th power, and then subtract 1 back out. This will result in a slightly larger number than the simple method.

The Value of the Monthly Return

Monthly returns can be useful to investors in assessing short-term performance and determining the characteristics of the portfolio that you've put together. For instance, if you have a stock portfolio, you can compare your monthly return to that of the Dow Jones Industrials or another stock market benchmark that matches up to your particular portfolio. If your returns are dramatically different, it can be evidence of whether you have a strategy that works well or poorly.

However, it's important not to put too much importance on any single monthly return. Concluding the success or failure of a strategy based on just one month can lead you to make erroneous decisions. If you note consistent underperformance for multiple months, then it can make sense to take a closer look.

Monthly returns are easy to calculate, and they can provide some interesting data to consider. Just don't let a month's performance distract you from the long-term nature of successful investing.

Topics:
  • Investing Strategies
  • Starting Out
  • Investing Strategies
  • Starting Out
  • Investing Strategies
  • Starting Out
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print
This article was written by The Motley Fool Staff from The Motley Fool and was licensed as an article reprint from February 21, 2016. Article copyright 2016 by The Motley Fool.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third-party provider of the reprint permission and Fidelity Investments are independent entities and not legally affiliated.
The images, graphs, tools, and videos are for illustrative purposes only.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917.
758136.1.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.

Here's what we suggest you explore next

Keeping the harMONEY alive: When investment styles collide

When it comes to tying the knot, couples have a number of different requirements. Some insist on living together; others insist on having the families meet. But what happens when you have different ways of handling money?

Invest affordably and simply

Professional online money management for less.

You might also like

5 of the biggest investment mistakes to avoid

Investing smart is not easy. This article outlines five of the biggest mistakes you can avoid while investing.

How I became an investor in my thirties

How one woman overcame her money fears, tackled her finances, and became an investor.

Divorcing? How to split up retirement nest eggs

Divorce is not only emotionally stressful, it is also stressful financially. Read here for tips on how you can split your retirement savings during divorce.

Start budgeting: Meet Cinch

Introducing CinchSM from Fidelity, a simple way to track your saving and spending. Just answer a couple of questions to get started.