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{Listen to the audio of this section and be sure to review your workbook action items at the bottom of this page}

 

You are probably familiar with the term ROI - return on investment - right? Well if you aren't, now you are and you can leverage some ROI calculations to determine how well your investments are doing!

Let’s get into just how to do this:



How to calculate your ROI on stocks

To the determine your ROI on stocks you need 3 numbers:

  1. The current stock price or the price at which you sold multiplied by the number of stocks you have
  2. The total price you paid including any commissions
  3. The total amount of any dividends you earned

Let’s put it together.

 
Lesson 14 - ROI Stocks.jpg
 

 

The formula:

The current stock price or the price at which you sold multiplied by the number of stocks

MINUS (-)

The total price you paid including any commissions

PLUS (+)

Any dividends you earned

DIVIDED BY (÷)

The total price you paid including any commissions multiplied by the number of stocks

 

 

Example:

Current stock price, $50 multiplied by the number of stocks you have, 100 = $5,000

MINUS (-)

The total price you paid including any commissions, $46 per share x 100 stocks = $4,600

PLUS (+)

Any dividends you earned, $100

DIVIDED BY (÷)

The total price you paid including any commissions, $46 per share x 100 stocks = $4,600

 

Putting it all together:

ROI = (($5000 - $4600) + $100) / $5,000 = 11% Return

 

 

** This formula can be used to calculate ROI on funds too including the funds in your retirement account. Just use the purchase price of the fund. 


How to calculate your ROI on bonds

To the determine your ROI on your bonds you need 2 numbers:

  1. The total price you paid including any fees
  2. The total amount of interest you earned

Let’s put it together.

 
Lesson 15 - ROI Bonds.jpg
 

 

The formula:

The total amount of interest you earned

DIVIDED BY (÷)

The total price you paid including any fees

 

Example:

Interest, $50

DIVIDED BY (÷)

The total price you paid including any fees, $500

Putting it all together:

ROI = $50/ $500 = 10% Return


Calculating ROI on multiple transactions

If you are buying stocks and funds frequently over time at different prices it might be difficult to track ROI manually, the good news is brokerages will provide you statements showing you your ROI and you can also view it in your online accounts.

However, it’s a good exercise to know how to calculate ROI on your own because it can help you make pre-determinations of ROI before you invest by testing out different assumptions on price.


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Use your workbook (located in the investing main menu) to do some ROI calculations using the following pages: 

  • ROI Worksheet