Mean Return

Can't we all just return nice?? Also known as the expected return the mean return in what we the return we expect to see on a portfolio of investments. Each individual investment in the portfolio might be expected to produce a different return, and we might have a different percentage of our assets allocated to each different investment.

As such, the expected return is a weighted average that takes into account how much money we have invested in each investment by weighting each investment differently. In general, we multiply the expected return of an individual investment by the percentage of our assets allocated for that investment. We do this for each investment and then add up the results. Maybe we invest 20% of our assets in Barry’s Berries which we expect to produce a return of 7%.

We invest the other 80% of our assets in Gail’s Kale which we expect to produce a return of 4%. To find the expected return, we multiply 0.2 and 0.07 to get 0.014, and we multiply 0.8 by 0.04 to get 0.032. Adding those up (0.014 + 0.032) gives us an expected return on this portfolio of 0.046 or 4.6%.