Calculate the Percentage Gain or Loss: Figuring out how much your investment has gained in percentage terms is simple yet crucial for investors.
To calculate the percentage gain, you’ll need to know how much you originally spent on the investment, which is called the purchase price. Then, you subtract the purchase price from the amount you sold the investment for. This will give you the gain or loss on your investment.
In case you don’t remember the original purchase price, you can ask your broker for that information. Brokerage firms offer records, either on paper or electronically, for each transaction you make. This includes details about what you initially paid for the investment, how much you sold it for, and other financial information related to the investment.
Calculate the Percentage:
Determining Percentage Gain or Loss
Here’s how you can figure it out:
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- Start with the price you sold the investment for, and subtract the amount you first paid for it. This will give you the gain or loss amount.
- Take that gain or loss amount and divide it by the original amount you paid for the investment.
- After that, multiply the result by 100. This gives you the percentage change in the investment.
If the percentage is negative, it means that the investment’s value has gone down compared to what you initially paid. This is called a loss.
If the percentage is positive, it means that the investment’s value has gone up compared to what you initially paid. This is called a gain.
Formula for Calculating Percentage Gain or Loss
Here’s how to calculate the investment percentage gain:
Investment percentage gain = (Price sold – Purchase price) / Purchase price * 100
In this calculation, you’re comparing the difference between the selling price and the purchase price. Then, you’re dividing that difference by the purchase price to get a decimal. When you multiply that decimal by 100, you get the percentage gain or loss in relation to your initial investment.
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When you do this calculation, the number you get in the numerator (the top part) represents the dollar amount of the gain or loss. Dividing this by the purchase price creates a decimal that tells you how much the gain or loss is compared to what you initially invested. Multiplying this decimal by 100 turns it into a percentage that shows the gain or loss as a part of your initial investment.
If you want to figure out the percentage gain or loss without actually selling the investment, you can use a similar approach. Instead of the selling price, you’d use the current market price. This would give you an idea of an unrealized gain (or loss), which means the gain or loss is theoretical because you haven’t sold the investment yet.
Why Calculating Percentage Gain or Loss Is Important
It’s essential to calculate the gain or loss on an investment as a percentage because it illustrates how much was earned relative to the investment amount.
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For instance, let’s consider two investors who both earned $500 from investing in the same stock. On the surface, it might seem like both investors achieved the same outcome. However, if we delve deeper, we find that the situation is more nuanced. If the first investor initially put in $20,000 to buy the stock and the second investor only invested $10,000, the second investor’s performance is actually better. This is because the second investor had less money at risk and still earned the same gain.
Moreover, the second investor could take the extra $10,000 (assuming both investors had $20,000 to begin with) and invest it in another stock to potentially earn additional gains.
Examples of Calculating Percentage Gain or Loss
The percentage gain or loss calculation can be used for many types of investments. Below are two examples.
Stock
Here’s an example to help you understand better:
Imagine an investor who bought 100 shares of Intel Corp. (INTC) for $30 per share. This means they spent $3,000 to start (30 dollars per share multiplied by 100 shares).
Later on, they decided to sell those 100 shares for $38 per share. So, the total money they got from the sale was $3,800 (38 dollars per share multiplied by 100 shares). This means the gain in terms of dollars was $800 (3,800 dollars from the sale minus 3,000 dollars initial cost).
To figure out the percentage gain, you can use either of these methods:
- ($3,800 sale proceeds – $3,000 original cost) / $3,000 = 0.2667 x 100 = 26.67%.
- Or, you can use the price per share:
($38 selling price – $30 purchase price) / $30 = 0.2666 x 100 = 26.67%.
This percentage (26.67%) shows how much the investment gained compared to the initial cost. It helps you see the increase in value over time.
Index
If you’re curious about how well the Dow Jones Industrial Average (DJIA) did over a specific time, you can use the same method to figure it out. The Dow is a collection of 30 major U.S. companies’ stock prices that helps show how the stock market is doing.
For instance, let’s consider an example: The Dow started at 24,000 points and finished the week at 24,480 points.
To calculate the percentage gain, you can use these steps:
- (24,480 – 24,000) / 24,000 = 0.02 x 100 = 2%
This means the Dow went up by 2% during that period. This calculation gives you an idea of how much the Dow increased compared to its starting point.
Fees And Dividends
When you invest, there are expenses you need to account for, and these should be taken into consideration when calculating percentage gain or loss. The examples mentioned earlier didn’t include broker fees, commissions, or taxes.
To include these costs, you should subtract the expenses of investing from the gain (the difference between the selling price and the purchase price). This will give you a more accurate representation of the actual gain or loss after considering all the associated costs.
Fees
Building upon the Intel illustration provided earlier, suppose the investor had to pay a broker fee of $75. The calculation for the percentage gain would then go like this:
(($3,800 sale proceeds – $3,000 original cost) – $75) / $3,000 = 0.2416 x 100 = 24.16%.
Observing this, we notice that the broker’s fee caused the rate of return on the investment to decrease by over 2%, shifting it from 26.67% to 24.16%. This showcases the impact of the brokerage fee on the overall percentage gain.
Dividends
If the investment provided any earnings or payouts, like a dividend, it’s important to include that amount when calculating the gain. A dividend is a sum of money given to shareholders, and it’s based on how many shares they have.
Using the Intel example, let’s assume the company gave out a dividend of $2 for each share. Since the investor owned 100 shares, they would receive $200, divided into four payments across the year.
To calculate the percentage gain, you would do this:
(($3,800 sale proceeds – $3,000 original cost) + $200) / $3,000 = 0.3333 x 100 = 33.33%.
If there were no brokerage fees, and the stock was held for a year, the dividend would boost the percentage gain from 26.67% to 33.33%, an increase of over 6%.
Now, if the stock was held for only two quarters (half a year), the gain would have an extra $100 (instead of $200) from the dividend since each quarterly payment would be $50.
When you consider things like transaction costs, account fees, commissions, and dividend income, you get a more accurate picture of the percentage gain or loss on an investment.
Why do I Need to Understand the Percentage Gain or Loss of an Investment?
Knowing how much a security’s value has gone up or down in percentage terms is valuable for investors. This information gives insight into the importance of price changes. Investors can apply percentage change to see how an investment performed in the past, or to gauge how strong or weak it is compared to similar assets. Additionally, percentage gain or loss provides a way to understand how much a security’s value changes, which helps assess its volatility.
In a Nutshell, How do I Calculate an Investment’s Percentage Gain or Loss?
To figure out how much an investment has gained or lost in percentage terms, follow these steps:
Find the difference between the amount you bought it for and the amount you sold it for.
Then, take this gain or loss from the investment and divide it by the initial price you paid for it.
After that, multiply this result by 100. This will give you the percentage change in the investment’s value.
If you want to find out the potential percentage change without actually selling the investment, you can use the same method. Instead of the sale price, just use the current market price as a reference point.
What Rule of Thumb Percentage Gain or Loss Figures Do Investors Need to Know?
Investors often describe a stock correction as a situation where the value of a stock falls by 10% or more from its highest point. Stock market crashes, on the other hand, don’t have a strict definition, but they generally refer to a sudden and significant drop of more than 10% in the value of a stock or an entire index within a brief period.
To balance the potential for risk and reward, numerous financial advisors suggest maintaining a portfolio that comprises 60% stocks and 40% bonds. This combination is intended to help achieve a balance between the potential gains from stocks and the stability offered by bonds.
What Other Factors Should I Consider When Calculating an Investment’s Percentage Gain or Loss?
The percentage change that’s publicly shown for a security doesn’t include extra costs like commissions, slippage, and holding fees. To get a more precise picture of an investment’s percentage gain or loss, it’s important for investors to consider these expenses when they’re doing their calculations.
Similarly, if investors want to understand the total returns from an investment, they should also include distribution payments like dividends when they’re calculating percentages. This gives a more comprehensive view of how well an investment has performed.
The Bottom Line
Knowing how much an investment’s value has gone up or down in percentage terms is useful for investors to compare performance and evaluate potential risks. The calculation for a security’s percentage change is relatively simple, needing just the buying and selling prices. To estimate how an investment’s value might change in the future without actually selling it, investors can use the current market price instead of the sale price.
For a more accurate view of how an investment has done, it’s important to consider expenses, such as commissions, and also include income earned from distributions like dividends when calculating the percentage gain or loss. This gives a fuller picture of the investment’s overall performance.
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