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Return on Investment

The return on an investment is the change in value of a financial asset or portfolio over a specific period of time; the return includes any interest, dividends, or distributions that were added to the asset or portfolio during that period of time. Your holding period return is calculated as follows:

                                              (Ending price – beginning price + dividends + distributions)                                                                                                                        Beginning price

The return on an investment is important because it is a measure of how much your asset or portfolio has grown over a specific holding period. Once you have calculated your return, you can compare your asset or portfolio’s performance to benchmarks. If you do not calculate your return for each of your assets, you will not be able to tell how well you are doing in your investing.

To calculate your investment return, subtract the investment’s beginning price from the investment’s ending price and then add the resulting amount to any dividends or distributions you received; then divide the resulting amount by your beginning price. Calculating your return is important because your return is a measure of how much your asset or portfolio is worth. In this calculation, include all dividends and distributions received, including dividends and distributions that were reinvested into the portfolio. This “holding-period return” can be annualized to reflect the total amount of return over a year, depending on the holding period of the asset.

To calculate after-tax returns, you would deduct the taxes to be paid from your dividend and distribution amounts; you would include in your calculation only the amount of dividends that you would get to keep after taxes.


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