Your return on investment is how much money you earned from an investment, expressed as a dollar amount or as a percentage of your original investment. There are two main calculations of returns. Annual returns represent the annual growth of your investment, which allows comparison with annual returns of other investments. Cumulative returns represent your returns without regard to duration and are not directly comparable with investments that span different lengths of time. Multiple investments, such as investing in numerous stocks, may be combined to calculate an overall cumulative return.
1. Add the purchase price of each security, including any broker's fees associated with the transaction. Consider an example where you purchased 100 shares of stock XYZ for $5 per share and 50 shares of stock ABC for $7 per share. Multiplying 100 shares by $5 gives a total purchase price for stock XYZ of $500. Likewise, stock ABC's total purchase price is $350. If you paid $50 in broker fees, your total purchase cost would be $500 plus $350 plus $50, resulting in a total cost basis of $900.
2. Add the total sales price for each security. Continuing with the example, if stock XYZ sold for $15 per share, multiply $15 times the 100 shares to get a sales price of $1,500. Likewise, if stock ABC sold for $12 per share, its sale price would be $600. Adding those two numbers together gives you a total sales price $2,100.
3. Subtract the total sales price from the total purchase price. In the example, subtracting $900 from $2,100 gives you $1,200.
4. Subtract any broker fees associated with the sale of the stocks. In the example, subtracting anther $50 in broker fees gives you a multiple cumulative return of $1,150.
5. Divide the total return by the total purchase price to derive the cumulative rate of return. In the example, dividing $1,150 by $950 calculates a multiple cumulative rate of return of 1.2778, or 127.78 percent.
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