How Do Stock Market Returns Work?

When you put your money in a stock, you expect to get back more than you put in. This is called a positive return. If you get back less than you put in, you have a negative return. You can calculate the return for individual stocks and you can also figure the total return for your entire stock portfolio.

Price Changes

When you buy a stock, you get it at a specific price per share. For example, you may buy XYZ company at $26 a share. If the stock price goes up to $30 and you sell it, you made a profit of $4 per share. If the stock price goes down to $24 and you sell it, you have a loss of $2 per share. You can calculate this as a percentage. Divide your gain or loss by the original share price and multiply by 100. In our example, $4 divided by $26 equals .15. Multiply by 100 and you see that you made a 15 percent profit. For the loss in the example, divide 2 by 26, and that equals .07. Multiply by 100 to find that you had a loss of 7 percent.

Yield

If you own a dividend-paying stock, the money you receive is called a yield. For example, if a stock pays a 2 percent dividend, you have a yield of 2 percent. The percentage is figured as an annual rate. A 2 percent yield means you get 2 percent of your original investment paid to you each year as a dividend.

Total Positive Return

If you had a profit on the stock and a dividend, add the percentage of profit to the percentage the dividend paid. In our example, a 15 percent profit plus a 2 percent dividend means you had a total positive return of 17 percent. The most common way to say this is that you had a gain of 17 percent.

Total Negative Return

If you had a loss instead of a profit on the stock, subtract the percentage loss from the dividend percentage. In our example, the loss of 7 percent subtracted from the 2 percent dividend equals -5 percent. You had a total negative return of 5 percent. It would be appropriate to say you had a loss of 5 percent.

Portfolio Return

When you want to figure the return for your total stock portfolio, it's simpler to use dollars instead of percentages at first. For example, if you own stocks A, B and C, count up the dollars you made or lost on each stock. Stock A may have lost $200, B may have made $500 and C may have made $50. These figures should include any dividends you were paid. Your total in this example is a positive return of $350. Let's say your total original investment in these three stocks was $5,000. Divide your return by your original investment and multiply by 100. In this case, 350 divided by 5,000 equals .07. Multiply by 100, and you see that you had a 7 percent total return on your portfolio. Many online trading sites will do this math for you as they track your portfolio, but it's good to know where the percentage comes from.

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About the Author

Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.

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