Expected Return is the profit or loss that an investor anticipates on an investment. Some stock analysts get it right, most get it wrong. That’s because no one really knows the future. At Modern Portfolio Spreadsheet, we believe the value of estimating an expected return is not so much in the accuracy of the prediction but in the relationship it has with other price movements, such as volatility and correlation to drive a better understanding of the overall portfolio performance.

Short of having a crystal ball, the tried and proven method to estimate an expected return is analyzing the historical data. RichKat will do the leg work for you by pulling 10 years of data to calculate the average annual return of the stock, including dividends. And based on the allocation of your portfolio, RichKat will automatically calculate the expected portfolio return.

Obviously, just because a company has averaged a certain annual return in the past, it doesn’t mean it will do the same in the future but the data does cut through the noise of daily news and analyst opinions to give you a data driven approach for evaluating a stock. More importantly, it’s a much needed piece of information to optimize your portfolio.

For companies that haven’t been on the market that long (i.e. under 10 years), we’re working on releasing a feature to our spreadsheet to provide suggestions on how you can estimate the expected return. This method may also be suitable for companies that are experiencing a business transformation and may need an adjustment to the expected return that was solely based on historical data. This is where experimenting with various projections to see how it affects the overall portfolio highlights the value of the tool. You’ll be able to quickly to see how your assumptions affect your portfolio.