Portfolio turnover: does frequent trading cost you return?

Turnover ratio expresses what share of your portfolio you replace on average per year: divide the lower of your total purchases or total sales over a period by your average portfolio value over that same period; €40,000 in sales against an average portfolio value of €50,000 gives a turnover ratio of 80%, meaning four-fifths of the portfolio was replaced on average that year.

What turnover ratio actually measures

Turnover ratio measures how actively a portfolio rotates: what share of it you replaced, on average, over a period by buying and selling. A turnover ratio of 100% roughly means you “swapped out” the entire portfolio once during that period; a ratio of 20% means you mostly held on to what you already had.

The formula:

Turnover ratio = lower of (total purchases, total sales) ÷ average portfolio value

The lower of the two amounts is used deliberately: if you buy €60,000 worth of new positions and sell €40,000, then €20,000 of that is net new money added rather than a “swap” of existing holdings — only the €40,000 that actually changed hands counts as turnover.

Worked example

Your portfolio had an average value of €50,000 over the past year. During that period you bought €45,000 in new positions and sold €40,000 of existing ones.

min(€45,000, €40,000) ÷ €50,000 = 80%

An 80% turnover ratio means that, by value, you replaced roughly four-fifths of your portfolio that year on average — a relatively active trading pattern.

What counts as a normal turnover ratio?

A rule of thumb for interpreting your own number: under 20% is typically buy-and-hold, 20-50% is moderately active, and above 100% means you replace your entire portfolio, on average, within a year.

Why a high turnover ratio can eat into your net return

Trading costs money. Every single time. Every transaction costs something: transaction fees, the bid-ask spread, and sometimes a currency surcharge on FX pairs. At a low turnover ratio, that cost drag stays limited to roughly once per position; at a high turnover ratio, you pay those costs again and again on the same capital, and you increase the risk of being wrongly positioned right before a sharp drawdown. Well-known research on retail investors (including work by Barber and Odean) shows a clear pattern: those who trade more often end up, on average, with lower net returns, partly from the accumulated costs, and partly because frequent trading often correlates with less well-founded, short-term decisions.

That doesn’t mean every sale is a mistake — rebalancing towards a target allocation or closing a position for good reasons is part of normal portfolio management. Someone who rebalances annually to a fixed allocation can end up with a turnover ratio of 15-20% without ever having traded impulsively — a day trader with the exact same ratio tells a very different story. The point of the turnover ratio is to make the pattern visible: is your trading frequency the result of deliberate choices, or of clicking more often than necessary?

How ClearAnalyser calculates this for you

ClearAnalyser calculates your turnover ratio automatically from your complete transaction history, so you can see at a glance how actively your portfolio rotates — and weigh that against its impact on your net return through cost drag. How to measure that net return correctly is explained in calculating your DEGIRO return, and other tools are compared in the DEGIRO portfolio tracker comparison.

Sources: Research on trading frequency and net returns among retail investors, including Barber & Odean, Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors (The Journal of Finance, 2000).