People usually invest their money for two reasons: principal protection and investment earnings. Investments earn income in a variety of ways. Ultimately, it depends on the type of investment. For examples, some stocks pay a dividend and bonds pay a percent of interest. Both are considered income. Investment Earnings (also referred to as returns) are usually expressed as a percentage.
Determine the Beginning Investment Value. If calculating for tax purposes, you will want to calculate the value from the beginning of the current tax year.
Let's say you purchased stock worth $5,000 at the beginning of the year.
Determine the Ending Investment Value. This is the ending value of the stock or the value of the stock at the end of the year, if calculating for tax purposes.
Let's say the stock is worth $12,000 by the end of the year.
Determine any additional income for the investment. This can be in the form of interest income, one-time payments or dividends.
Let's say your stock paid out a dividend of $200 over the year.
Calculate Investment Earnings. Subtract the Beginning Investment Value from the Ending Investment Value and then add any additional income identified in Step 3.
For instance, the calculation for this example is: $12,000 - $5,000 + $200 = $7,200.
Calculate Investment Return. Divide Investment Earnings by the Beginning Investment Value. The calculation is: $7,200 / $5,000 = 1.44 or 144 percent.
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