It's important to be able to calculate the rate of return on your investment portfolio. This information is necessary to understand your past investment earnings, get a picture of your current financial status and help you make decisions in the future. Unfortunately, many investors do not understand how to accurately calculate their return on investment for their portfolios, especially when it comes to mixed investments and accounting for deposits and withdrawals. When done correctly, calculating your return on investment is very useful for any investor.

### Things You'll Need

- Financial calculator

- Portfolio statements

Determine your portfolio balance for a set period of time. The best way to calculate your rate of return is annually, since that is how interest rates are calculated and it's information you should know for your taxes. For each of your investment accounts, look up your balance on the last day of the previous year and then on the first day of the year before that.

Write down the dates and amounts of any deposits and withdrawals for each of these accounts. You will need to account for these separately when calculating your rate of return. Write all the amounts from the year for which you're calculating the rate of return.

List your balances, deposits and withdrawals in terms of cash flow. Your initial balance and each deposit should be considered negative numbers since this is money coming out of your pocket. Similarly, your withdrawals and final balance are positive numbers since this is money going into your pocket.

Use a tool that evaluates the internal rate of return (IRR) equation to calculate your return on investment. A financial calculator will already have the equation programmed, as will Microsoft Excel and other financial computer programs. The IRR equation is complex and difficult to solve by hand with just pencil and paper, especially if you have several deposits and withdrawals.

Enter your initial investment, deposits and withdrawals and final balance in your tool in terms of cash flow as you listed them previously. If you use a financial calculator, enter these values using the cash flow entering instructions specific to your calculator. In Excel, simply enter each cash flow value into a unique cell, all in one column. Then, use the IRR function on your calculator or computer program to calculate the rate of return for your portfolio.