# How to Calculate Average Monthly Return

Investors often calculate monthly returns on their portfolio's assets.

Calculating the average monthly return of an individual stock or your entire portfolio helps you keep an eye on the health and strength of your investments and determine if you need to make adjustments. The best stock advisor websites will take this calculation into account when making recommendations.

## Calculating a Stock's Total Return

The team at Fervent Learning's Investment Fundamentals offers an in-depth explanation of how to calculate stock returns. They explain that the basic formula is as follows: Return = (Ending Value - Initial Value)/Initial Value. This simplifies down to Return = Ending Value/Initial Value - Initial Value/Initial Value = (Ending Value/Initial Value) - ​1.

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Multiply this decimal value by ​100 percent​ to obtain a percentage. This holds true no matter what period you're calculating over. However, it all depends on precisely what data you're working with. For example, you may be looking at unadjusted returns that don't take into account dividends. In this case, you would need to add the value of dividends to the Ending Value before dividing by Initial Value and subtracting ​1​.

Another way to do this is to go by the adjusted closing price. This price takes into account cash dividends, stock dividends and splits. You can find this information on the company's website. Alternatively, many finance websites offer this information to the public.

## Calculating Average Monthly Return

There are several ways to calculate average monthly return, again depending on what data you're working with. If you've derived a stock's return from its adjusted closing price as above, then there are two ways to obtain an annual rate of return, from which you can calculate a monthly average.

The more straightforward way is to simply multiply the rate you've obtained over a given period by the number of periods in each year. For example, if you're working with daily data, you can multiply the daily rate by ​250​ (the approximate number of trading days in a year). This will give you an estimated annual rate. Multiply by ​100 percent​. From there, divide by ​12​ to get the average monthly rate of return.

## Additional Formulas for Obtaining Monthly Average

However, the more accurate formula is to add ​1​ to the rate per period and raise that sum to the power of the number of periods, all before subtracting 1 again. For daily rates, this would be ​((1 + Daily Rate) ^ 250 -1) x 100 percent​. To get the monthly average, again divide by ​12​.

Other methods of obtaining the monthly average again depend on the data. You can use the monthly statements issued by your brokerage company to look at your starting balance, ending balance and net deposits (which can be a positive or negative number). The net deposits represent the movement of money in or out of the account that is not related to the value of the assets in the account. Subtract the ending value's net deposits from the account's value at the start of the month and subtract ​1​ as before. This is the rate of return for that month. Add the monthly rates for the year together and divide by ​12​ to obtain the average.

Finally, you may be obtaining data from an annual statement that shows you the stock's value at the start of the year and its value at the end of the year. Subtract the starting value from the ending value to obtain the total return for the year, then divide by ​12​ to obtain the monthly average.

## Additional Tips for Calculating Monthly Average

You can do all of these calculations in Excel or similar programs. Here is the most straightforward method: create a column for dates and a corresponding column for adjusted closing price on that date. The rate of return for each period is the current month's price divided by the previous month's price followed by subtracting 1 and multiplying by 100 percent. Put this formula in a third column for stock return and extend it through all the documented periods. Take the simple average at the end to obtain the monthly average.