If you want to be a successful investor, you have to hold yourself accountable for your investment results. So it's useful to measure your portfolio performance against an appropriate benchmark to make sure that your efforts are producing an appropriate rate of return. If you only judge yourself based on the absolute gain in your assets, then you'll never know how much of your success came from a favorable market and how much was due to your specific investment decisions. By using an investment return calculator, you can more accurately judge your performance and compare it to that of the broader stock market.

How should you judge your investment returns?

The first thing you need to decide before you start calculating returns is the appropriate benchmark to measure your personal results against. Your yardstick should reflect the returns that the broader market has generated, but also should take into account the actual investments you make, and your general tolerance for risk.

For example, many people use the S&P 500 index as a benchmark for their investment results. That's completely appropriate if you have almost all of your investments in large-cap U.S. stocks. However, if you have a more diversified portfolio -- whether it includes completely different asset classes like bonds, different types of stocks like international companies or small-caps, or different weightings of the stocks within the index -- then comparing your results to the raw returns of the S&P 500 won't necessarily be fair. Instead, you'll want to use a hybrid metric that incorporates the returns of the different asset and sub-asset classes in which you're invested.

Stock charts going up.

Image source: Getty Images.

The simple way to calculate returns

The easiest way to measure your return is to look at three numbers: your beginning account balance, the amount of money you regularly add each year, and the account balance at the end of the period. Then, you can use the following calculator to figure your return.

Editor's note: The following language is provided by CalcXML, which built the calculator below.

* Calculator is for estimation purposes only, and is not financial planning or advice. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.

As an example, say that you start out with $100,000, invest $5,000 each year, and end up with $200,000 at the end of five years. In the calculator, you'll enter five for the number of periods. You'll put in -$100,000 for the initial "payment" that represents the starting balance of the account, with the negative indicating that it's money that you put into the account. In regular receipts and payments, put in -$5,000, again with the negative reflecting ongoing investments. The final receipt line gets the $200,000 final balance, with the number staying positive because you're entitled to receive it at the end of the period. Run the calculation, and you'll find that your average annual return is a bit over 11% in this scenario.

Getting a ballpark figure

In reality, investing is more complicated. Few people add the same amount of money to their portfolios year in and year out, and if you make withdrawals from and deposits to your account on a regular basis, accounting for all those fund movements gets tricky from a total return standpoint. However, this calculator will give you an approximate value, which is a good starting point to compare against the returns of a benchmark to see how you're faring.

Using an investment return calculator will give you a much better sense of exactly how successful you are as an investor. If you only judge your performance by anecdotes, it's easy to mislead yourself about your good fortune. The hard numbers tell the truth, so get the facts, assess your results honestly, and take appropriate action as necessary.

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