Choosing an investment is just the beginning of your business as an investor. You should monitor the performance of these investments from time to time to see how your portfolio can work together to meet your goals.
In general, progress means that the value of the portfolio continues to rise, even if one or more investments lose value. If your investment is not profitable or your account is depreciating, you need to find out why and move on to the next step.
The investment market is constantly changing and we need to find ways to improve the performance of our portfolio. You may need to diversify into other sectors of the economy or set aside a portion of your portfolio for international investment.
To free up cash for these new purchases, you can sell individual investments that are not performing as expected without abandoning your chosen asset allocation.
Are My Investments Doing Good?
Determining investment performance involves considering several methods for measuring performance. Which one you choose will depend on the information you are looking for and the type of investment you are looking for.
For example, if you have a stock that you want to earn in the short term, you will be more attracted to it when the market price rises, falls or appears to be flat. In contrast, buy-and-hold investors who are interested in the value of stocks 15 to 20 years from now will wonder if there is a profit growth model and what it might look like. Hope you are well-positioned for future expansion.
On the other hand, if you are a conservative investor or looking to retire, you may be particularly interested in the return on your investment. You can compare the interest rates on bonds and certificates of deposit (CDs) with current market rates, evaluate the performance of the stocks and mutual funds that you buy, and earn the resulting return.
Of course, a low market price can undermine your ability to reinvest at the maturity of an existing bond. You might want to buy a cheaper investment expecting a higher return. In this case, you should use performance indicators to assess the risks you are taking to achieve the desired results. Be careful not to compare apples and oranges when measuring your ROI.
It is important to find the right indicators for your investment and apply them. Otherwise, the wrong conclusions can be drawn. For example, there is little reason to compare the performance of mutual funds with government bonds. This is because the goals of the portfolio do not match.
Yield Percentage
Yields are usually expressed as a percentage. This is the income that the system pays over a certain period (usually one year), divided by the price of the system. All bonds have bank accounts containing yields, dividend stocks, most mutual funds, and certificates of deposit.
Bond Yields – When you buy a mortgage, your income is the interest rate or interest rate. The interest rate is calculated by dividing the annual interest payment by the par value (usually $ 1,000). So, if you ask for $ 50 interest on a $ 1,000 mortgage, you get 5%. However, securities purchased after issuance in the secondary market bring different interest rates and yields because the price paid differs from the par value. The yield on bonds rises or falls depending on the creditworthiness of the issuer, the terms of interest rates, and the general market demand for the bond. Mortgage income based on secondary market prices is called current mortgage income.
Stock Yields – For stocks, the yield is calculated by dividing the annual dividend by the market price of the stock. You can find information on the Internet on the financial pages of newspapers and in agency reports. Of course, if no dividends are paid on a stock, it will not make a profit. However, if your reason for investing is a combination of growth and profit, you can deliberately choose stocks that perform as well as the market average. However, when buying high dividend stocks, you should consider the percentage of the profit the issuer pays out to shareholders. Companies looking to maintain a good reputation despite financial difficulties can issue the most profitable shares. However, if the company does not recover sooner or later, it may have to cut dividends, which will negatively affect its results. Stock prices may also fall. It should also be remembered that dividends paid by a company are funds that the company does not use to invest in the company.
Deposit Yields – If the asset is on a regular CD, it is not difficult to calculate the yield. The Annual Percentage Yield (APY) and the interest rate payable via CD are available from banks or other financial services companies. In most cases, rates are set for the duration of the CD.
Return Rate
Return on investment is all the money you gain or lose as a result of your investment. To find the total return, which is generally considered the most accurate measure of return, we add the change in value (up or down) to the investment return as dividends from the investment return or investment purchases. To determine the return, divide the change in value and return by the amount invested.
Formula: (Value Change + income) / Investment = Return Percentage
For example, suppose you invest $ 2,000 and buy 100 shares at $ 20 each. As long as you own it, the price goes up to $ 25 per share and the company pays out a general dividend of $ 120. To find total sales, add a $ 500 increase to the $ 120 dividend and divide the profit by $ 2,000 to get a 31% return. The numbers alone do not convey the whole picture. As an example. Since you are investing over different periods of time, the best way to compare results is to look at the annualized rate of return.
If the share price falls during the holding period, resulting in losses instead of gains, it should be calculated in the same way, but if the return on investment does not include losses, the return may be negative.
You don’t need to sell your investment to calculate your profit. In fact, calculating the rate of return can be one of the factors determining whether to keep stocks in your portfolio or trade them with the potential for higher returns.
If you plan to hold your bonds to maturity, you can calculate your total income by paying the bonds’ income earned at maturity, along with the principal that is due at maturity. If you sell a bond before it expires, you should consider the interest you paid, the amount you received when you sold the bond, and the price you paid when you bought the bond.
Tips
As you gain experience as an investor, you can learn a lot by comparing returns over several years and observing when different investments go up and down. The annualized rate of return is very useful for seeing how different investments are made in different market conditions. It can also be a factor in deciding what to do next. Unless you have a short-term investment strategy or one of your investments is not urgent, you usually invest in long-term impact on your portfolio, rather than in response to a jump. and a falling market.
Gains and Losses
Investments are also known as investments. If you make money selling one of your investments for a higher price than you bought it, you will receive a capital gain. On the other hand, if you lose money on the sale, you will suffer a capital loss. Capital gains and losses can be an important factors in portfolio performance.
This is especially true for active investors who buy and sell regularly. Capital gains are usually taxed unless you sell your assets to a tax-free or tax-exempt account. .. The tax rate depends on how long it takes to sell the property. The rate is lower than the rate. your normal income, however, gains on the sale of short-term assets less than one year are excluded from this special case and are taxed on ordinary income.
This is one of the reasons why we want to postpone making a profit until we see it as a long-term profit whenever possible.
Some systems, such as the following, allow you to decide, for example, when to buy or sell stocks that you own. Only the investment income actually received is taxed. In other words, you are selling your investment for a profit. However, you can get those profits back by selling your other investments at a loss.
In the case of other investments, capital gains can be more difficult. For example, mutual funds differ from stocks and bonds in terms of capital gains. As with stocks and bonds, you must pay capital gains tax in the short or long term in order to make a profit and sell your stock.
However, even if you own the shares and do not sell them, you must pay taxes annually on the entire capital gains of the fund. Whenever the trustee sells securities in the fund, taxable capital gains (or losses) may occur. If the fund’s income cannot be offset by losses, the fund has a legal obligation to distribute its income to the unitholders.
If the fund has high taxable income in the short term, its profitability will decrease. This should be taken into account when assessing investment efficiency. You can look at the turnover of a mutual fund, which you can find in our guide to mutual funds, and can give you an idea of whether a mutual fund can generate short-term returns.
Revenue is the percentage of the trustee’s portfolio that replaces sales and purchases over a period of time (usually one year). Unrealized gains and losses, also known as paper gains and losses, are the result of changes in the market price when the investment is held and until it is sold.
Suppose the stock price in your portfolio is going up. If you do not sell the stock at a new high, you will not be able to realize your profit because you will lose your profit if the price falls. The profit comes only from the sale of your investment. This is a real advantage.
This does not mean that the unrealized gains and losses are negligible. The unrealized gains and losses determine the total value of the portfolio and together with the return on investment account for the majority of the results.
In fact, much of the discussion in the financial media, especially the dynamics of stocks, focus entirely on these price changes over time.
