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I thought it shouldn't matter? I'm only interested in the overall ROI, when I have sold all shares (suppose I sold the remaining 18 shares "today" when it's $7/share)
it does matter because cost on the sold shares and gains are different based on the method you sold with and that changes the cost basis on the remaining shares .
you need the exact sequence .
don't forget up 100% year one and down 50% year two is actually a zero return . but if we merely use averaging then it is a 25% average yearly return because up 100% and down 50% = plus 50% over 2 years or an average return of 25% and we can see that is clearly wrong . so you need to see exact cost basis's in order
it can get tricky with sales because you don't want to count the same money 2x . if you have 100k in stock and sell 1/2 , make a profit and buy something else for 50K you don't want to count that as 150k so you need to work in the sales based on the cost method in to the 100k.
So is there something called "overall ROI" of an investment? When folks say "My 401k had a ROI of 8% last year", how was that 12% calculated?
What I do is divide the original value of portfolio at beginning of year into the gain for the year to arrive at an the ROI. That's good enough for me.
Example:
$30,000 - Jan. 1 Portfolio Value $33,500 - Dec. 31 Portfolio Value
$x3,500 - Gain
So is there something called "overall ROI" of an investment? When folks say "My 401k had a ROI of 8% last year", how was that 12% calculated?
What I do is divide the original value of portfolio at beginning of year into the gain for the year to arrive at an the ROI. That's good enough for me.
Example:
$10,000 - Jan. 1 Portfolio Value $11,500 - Dec. 31 Portfolio Value
$x1,500 - Gain
What I do is divide the original value of portfolio at beginning of year into the gain for the year to arrive at an the ROI. That's good enough for me.
Example:
$10,000 - Jan. 1 Portfolio Value $11,500 - Dec. 31 Portfolio Value
$x1,500 - Gain
$10,000/$1,500 - 15.0% ROI
If there were no sales, it's simple. What if you had some partial sales during the years? Will you still divide the gain by the original $10,000, or deduct the sales proceeds from the $10,000?
I would add gross proceeds from whatever I sold during the year (assuming you didn't reinvest into something else) back into the 12/31 value and then do the calculation. This will not be 100% accurate because if you bought at 5 and sold at 8 within 3 three months, the ROI on that transaction would be much higher on an annualized basis - i.e. 240% assuming you were able to repeat that result every three months. Ridiculous one-off number.
Now, if you're a trader, then it's quite possible you would be seeing these gains. People make a living trading on sharp price swings and reap handsome profits over very short periods of times - so that's a whole 'nother kettle of fish - and their annualized ROIs would be astronomical. But, trading is very different from investing. I doubt annualized ROIs matter much for traders except for their long-term holdings.
Last edited by Ariadne22; 11-03-2018 at 08:55 PM..
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