Investment portfolio returns
Investment portfolio returns are a set of financial instruments that investors or companies use such as stocks and bonds , to obtain returns by collecting. financial assets in a way that serves investment objectives and reduces risks by allocating capital to several assets and thus helping to reduce loss.
This makes calculating and evaluating portfolio returns one of the most important objectives, as well as identifying the. current situation of the portfolio, through several mathematical measures through which both return and risk can be calculated, in addition to portfolio performance.
In our article, we will learn about the .definition of return on investment, review and explain several investment portfolios, as well as the types of investment risks.
The concept of Investment portfolio returns
Return on investment is defined as a set of profits and gains arising .from investment within a specified period (i.e. the amount of inflow added to the original .capital that maximizes the investor’s wealth over a specified period), where the rate of success in obtaining the return is associated with the degree of risk, and in a clearer sense, the return-risk relationship is the higher the return the higher the risk.
Types of Investment portfolio returns
We will now review some portfolio returns. to clarify the purpose of this tool, as we will know how to calculate, and these returns are:
1. Risk-free rate of return
This type of return is obtained by interest on. deposits in banks, as well as the interest rate on stocks and assets that have a short time issued by governments.
2. Required rate of return
This return is obtained by compensating investors for potential risks such as (investment risk, inflation, and waiting for compensation).
This return is calculated in the following manner:
Risk-free rate of return = risk premium + expected inflation ratio
-The rate of return achieved
It is the rate of return that can be achieved by. buying and holding a particular stock to benefit from it when its price rises.
This return is calculated in the following manner:
(share sale price + cash dividend – share purchase price )/share purchase price
4. Expected Return
This return is calculated in many ways and one of the simplest is the total return on investment likely to occur.
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