Q: How do I calculate ROI for a given time period?
In the simplest terms, returns can be calculated by dividing the change in value by the original value.
Let’s say you purchase 20 shares of a stock for $10 apiece on January 1. On January 31, those shares are worth $11. To calculate your January returns, start by measuring the difference between your starting value ($200) and ending value ($220). In this case, the total value of your purchased shares grew by $20. Divide that growth by the original value to learn your total returns ($20/$200 = 10 percent). You can repeat this calculation to figure out your returns over any period of time, including year to date or portfolio inception to date.
But remember: If you’re paying fees to a broker or enlisting the services of a wealth manager, it’s important to make a distinction between returns that are “gross of fees,” meaning fees haven’t been considered at all, versus “net of fees.”
Let’s take the example above: If you were working with an advisor to purchase those 20 shares, and that person charged a $5 monthly fee, you can calculate your net-of-fees return by subtracting that $5 from the growth in value, then dividing by the beginning value ($20-$5)/$200 = 7.5 percent). So, when investing, it’s important to take fees into account, too.
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March 16, 2017