It’s no secret that one of the keys to a successful investment portfolio is earning a healthy return on your investment. But how do you actually calculate your investment returns?
There are a few different ways to measure your investment returns, but the most common method is to simply take the difference between your starting investment value and your ending investment value, then divide that figure by your starting investment value. This will give you your investment return as a percentage.
For example, let’s say you start with a $10,000 investment. After one year, your investment is worth $11,000. Your return would be calculated as follows:
((11,000 – 10,000) / 10,000) x 100 = 10%
As you can see, this method of calculating investment returns is pretty straightforward. However, there are a few things to keep in mind.
First, this method only takes into account the appreciation or depreciation of your investment. It does not take into account any income that your investment may have generated, such as interest payments or dividends.
Second, this method does not account for the effects of inflation. In other words, if your investment only keeps pace with inflation, then your real investment return would be zero.
Finally, this method only looks at your investment return over a single period of time. If you want to get a more accurate picture of your investment returns, you need to calculate your average investment return over a longer period of time, such as five years or ten years.
The bottom line is that calculating your investment returns is important, but it’s just one piece of the puzzle. To get a true picture of your investment performance, you need to look at a variety of factors, including your investment return, your investment income, inflation, and your investment time horizon.
