How to Caculate Return on Investment

Though you can simply calculate your gain or loss by figuring the difference between what you paid and what you sold for, that alone won't give you an accurate picture of how well your investment has performed. Instead, you need to account for the amount you invested and how long you held the investment.

Step 1

Subtract the purchase price from the current price of your investment. If you've already sold the investment, use the selling price. For example, if you bought 50 shares of Maroon Corp for $800 and sold them for $650, your loss is $150.

Step 2

Divide your gain or loss by the amount you invested. This is your overall return on your investment. For this example, divide your $150 loss by $800 to get 0.1875, meaning your overall loss is 18.75 percent.

Step 3

Add 1 to the overall return. In this example, add 1 plus 0.1875 to get 1.1875.

Step 4

Divide 1 by the number of years you invested. For example, if you held the stock for 10 years, divide 1 by 10 to get 0.1.

Step 5

Raise the overall return plus 1 to the power of 1 divided by the number of years you invested. In this example, raise 1.1875 to the 0.1 power to get 1.0173.

Step 6

Subtract 1 from the result to find the average annual return. In this example, subtract 1 from 1.0173 to get 0.0173, meaning your average annual return on the investment is a 1.73 percent loss.

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About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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