Calculating the average return on a portfolio of stocks requires you to figure the total returns across all the stocks and then average the returns over the time period during which you held the portfolio. Calculating the average annual return on the portfolio allows you to figure out how well your portfolio performed as well as estimate your future earnings. However, past gains do not mean you will continue to do as well in the future, nor do past losses guarantee you will lose money in the future.
1. Add the purchase price of all your stocks in the portfolio to find the initial value of your portfolio and the ending price of all the stocks in the portfolio to find the final value of your portfolio. By using the total values of your portfolio, you accurately weight each of the stocks for the portion of your portfolio they comprise.
2. Divide the ending value of your portfolio by the beginning value of your portfolio. For example, if you started with a portfolio valued at $12,000 and five and a half years later you had a portfolio valued at $17,000, divide $17,000 by $12,000 to get 1.416666666666667.
3. Divide 1 by the number of years over which your portfolio accumulated in value. In this example, divide 1 by 5.5 to get 0.18181818.
4. Raise the Step 2 result to the power of Step 3. "Power" means to use exponents, which requires using a scientific calculator. On the calculator, enter the Step 2 result, press the power key (typically either a "^" or "x^y"), enter the Step 3 result, press "Enter" and the calculator displays the result. In this example, raise 1.416666667 to the 0.181818182 power to get 1.065376747.
5. Take away 1 from the result to find your average annual return on your stock portfolio. In this example, subtract 1 from 1.065376747 to find your average annual return equals 0.065376747, or about 6.54 percent.