How your portfolio or stocks doing? Did you calculate the return on your investment and have you calculated the return in meaningful way?
So many calculations are there that can give you the idea for how the investment is doing. Many of them are so complicated and difficult to use but, obviously none of them is out of reach of the calculator or investors.
Here are many calculations that any investor can make use of to help him self in understanding that how the investment is doing.
It is the simple evaluations but it helps a lot to remind you that wither there is a need for including the dividends. Here the simple formula:
(Value of the investment in the end of a year – value of the investment at the beginning of year) + Dividend/ value of the investment at the starting of the year is equl to total return.
If you have bought the stock in 7,543$ dollars and its new value is 8,876$ dollars so, you have an unexpected gain of 1.333$ dollars. You would also receive the dividends through this time 350$ dollars. Now calculate what is the over allreturn or income.
(8,876$ dollars – 7,543$ dollars) + 350$ dollars/ 7,543$ dollars = total return.
1,333$ dollars + 350$ dollars/ 7,543$ dollars = total return
1,683$ dollars/7543$ dollars = total return
22.31 % is the total amount returned.
You may use these calculations for any time duration. But, it has the weakness that it does not take into the account the time price of the money.
Definig Simple return
The Simple return is same as the total return. Although, it is used in the calculation of the return of the specific investment, but after selling it.
Here we have the formula for simple return
Total proceeds + dividend / cost basis – 1
Now we go through the example. Suppose if you have bought the stocks in 3,000$ dollars and paid 12$ dollars commission. Now your cost basis becomes 3,012$ dollars. Then you sell the stocks in 4,000$ dollars and there is one more commission of 12$ dollars, now net proceed becomes 3,988$ dollars dividend the amount to 126$ dollars.
The total return or income calculation shows you nothing about the time period or for how long the asset was kept. If you wish to look after tax returns, you should simply substitute the “net proceeds after tax”, for the variable use after the tax dividends the number.
Compound yearly growth rate
Investments held more than a year. You might look at more sophisticated. Now do more complexed calculation
The combined yearly growth rate shows the timely value of the money in yourasset. A return of unto 40 percent in over a period of 2 years is quite enough but, a return of 40 percent in ten years is not enough at all.
Complicated or simple calculations may provide you the better result on how your investment is doing. It gives you the complete necessary information about your investment.