Calculating the rate of return of your stock portfolio allows you to measure how well you've invested your money. However, you need to make a distinction between the total rate of return and the annualized rate of return. The total rate of return refers to the return over the entire period -- however long or short that might be -- while the annualized rate of return refers to the average annual return. Knowing the annualized return allows you to compare different return rates better. For example, a 15-percent return sounds great initially, but if you later learn it took the portfolio eight years to earn it, it's not such a hot stock tip anymore.
Subtract the starting value of the stock portfolio from then ending value of the portfolio. You can use any time period you want. For example, say you want to calculate the rate of return for years 2009, 2010 and 2011. If the portfolio was worth $20,000 at the start of 2009 and $27,000 at the end of 2011, subtract $20,000 from $27,000 to get $7,000.
Add any dividends received during the time period to the increase in price to find the total gain. Continuing the example, if you received $3,000 in dividends, add $7,000 to $3,000 to get a total gain of $10,000.
Divide the gain by the starting value of the portfolio to find the total rate of return. In this example, divide the $10,000 gain by the $20,000 starting value to get 0.5, or 50 percent.
Add 1 to the result. In this example, add 1 to 0.5 to get 1.5.
Divide 1 by the number of years it took to achieve the total rate of return. In this example, divide 1 by 3 to get 0.3333.
Raise one plus the total rate of return to the power of 1 divided by the number of years. "Power" means using exponents, which requires a calculator. On the calculator, the power key is usually a "^" or "x^y." In this example, raise 1.5 to the 0.3333 power to get 1.1447.
Subtract 1 from the result to find the annualized rate of return. In this example, subtract 1 from 1.1447 to find the annualized rate of return for the portfolio is 0.1447, or about 14.47 percent per year.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."