DIY: Equity Risk Premium Calculation

Performing an equity risk premium calculation for your investment portfolio is a good way to determine future returns. In theory, investments that have little to no risk such as treasury bonds and certificates of deposits should not provide as good a return as riskier investment vehicles such as stocks. This is where the equity risk premium calculation comes into play. The equity risk premium calculation is the excess return that one should expect above a risk free return.

With more people turning to green money management habits such as green investing, purchasing eco-friendly vehicles, and green real estate, investors want to put their greenbacks into green investments looking to make a big profit. Green investing used to be a fringe sector but is now becoming a major player in the investing world. Seventy-seven billion dollars are now allocated toward companies that specialize in eco-friendly practices and alternative energy sources. Many experts predict green investing and green money management habits to boom into a $260 billion dollar industry in just 10 years.

Doing an equity risk premium calculation will help you set your portfolio performance expectations and determine asset allocation. Since green investing is fairly new, you can utilize several factors to determine what kind of possible return your eco-friendly investments might give you. An equity risk premium calculation is a long term snapshot of possible stock performance and is certainly not etched in stone. You'll want to sit down with an investment professional and do more research about performing an equity risk premium calculation before proceeding.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.