If you’ve been investing for a while, you probably have money spread across different assets—like stocks, bonds, mutual funds, ETFs, or maybe even crypto. But how do you figure out how well your entire portfolio is doing as a whole?
That’s where weighted average return of an investment portfolio comes in. It’s a simple but powerful concept that gives you a true picture of your portfolio’s performance—taking into account not just how much each investment returned, but how much money you had in each.
In this post, we’ll break it down step by step.
💡 What Is a Weighted Average Return Of An Investment Portfolio?
A weighted average return is the average return of all your investments, adjusted for the size of each one. That means bigger investments (where you’ve put in more money) have more influence on the overall return than smaller ones.
Why use it?
Because not all your investments are created equal. If you made 50% on a €500 investment but only 2% on a €10,000 investment, your portfolio definitely isn’t up 26%. Weighted averages give you the real number.When reviewing your investments, it’s tempting to focus on the individual returns of each asset—like your stocks, ETFs, or crypto. But this can be misleading if you don’t consider how much money you’ve invested in each. That’s why the weighted average return of your portfolio is so important.
The weighted average return gives you the full picture. It accounts for both the performance of each investment and the proportion of your total portfolio that each one represents. For example, if you made 30% on a small €500 investment but only 3% on a €10,000 investment, your overall portfolio certainly didn’t return 16.5%. A weighted average will show the actual impact of each investment on your total return.
Without using a weighted approach, you might overestimate your portfolio’s performance, which could lead to poor decisions—like taking on more risk than you should or rebalancing in the wrong direction. Looking at the weighted average helps you make smarter, more realistic financial choices and better understand how your capital is really working for you.
In short: individual returns tell part of the story, but weighted average return of an investment portfolio tells the truth. It’s the most accurate way to measure your portfolio’s performance as a whole.
🧮 The Basic Formula
Here’s the formula:
Weighted Average Return = (w₁ × r₁) + (w₂ × r₂) + (w₃ × r₃) + … + (wₙ × rₙ)
Where:
- w = the weight of the investment in your total portfolio
- r = the return of that investment
- The weights must all add up to 1 (or 100%)
🔢 Step-by-Step Example
Let’s say you have the following investments:
| Investment | Amount Invested | Return This Year |
|---|---|---|
| Stock A | €4,000 | 10% |
| ETF B | €6,000 | 5% |
| Crypto C | €2,000 | -15% |
Step 1: Calculate the Total Portfolio Value
€4,000 + €6,000 + €2,000 = €12,000
Step 2: Calculate the Weights
- Stock A: €4,000 / €12,000 = 0.33
- ETF B: €6,000 / €12,000 = 0.50
- Crypto C: €2,000 / €12,000 = 0.17
Step 3: Multiply Each Return by Its Weight
- Stock A: 0.33 × 10% = 3.3%
- ETF B: 0.50 × 5% = 2.5%
- Crypto C: 0.17 × (-15%) = -2.55%
Step 4: Add Them Up
3.3% + 2.5% – 2.55% = 3.25%
🎉 Your portfolio’s weighted average return is 3.25%.
📉 What If You Lost Money?
No problem—the math still works. Negative returns will drag your average down. That’s the point: it shows the real impact each investment has.
🧰 Tools You Can Use
You don’t have to calculate this manually every time. Here are a few tools that can help:
- Excel or Google Sheets – Use built-in functions like
SUMPRODUCT - Portfolio tracking apps – Many apps like Personal Capital, Morningstar, or Sharesight do this for you
- Robo-advisors – Platforms like Betterment or Wealthfront usually show this in your dashboard
💭 Final Thoughts
The weighted average return is one of the most important metrics you can use as a personal investor. It gives you a clear, honest view of how your investments are performing as a team, not just as individuals.
Tracking this regularly helps you:
- Stay realistic about your returns
- Compare your performance to benchmarks
- Make smarter allocation decisions
So next time you’re reviewing your investments, go beyond individual stock performance—and calculate your weighted average return. Your future self will thank you.