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How to Determine an Investment's Percentage Gain or Loss




It is important for investors to know how to determine their investment's percentage gain and it is actually very simple.


Investors must first ascertain the investment's original cost or purchase price in order to compute the percentage gain on the investment. The investment gain or loss is then calculated by deducting the investment's acquisition price from its selling price.


Investors can ask their broker for the original purchase price if they don't already have it. For every transaction, brokerage houses provide trade confirmations, either in print form or online, that include the original buy and sale prices as well as the investment's financial information.


CALCULATING THE PERCENT GAIN OR LOSS


  1. Add the original purchase price to the selling price. Gain or loss is the outcome.

  2. Divide the investment's gain or loss by its initial value, which is typically its acquisition price.

  3. To get the percentage change in the investment, multiply the figure by 100.

A loss on the investment occurs if the percentage turns out to be negative since the market value is less than the original purchase price, also known as the cost basis. There has been a profit on the investment if the percentage is positive since the market value or selling price is higher than the initial purchase price.


Without selling the investment, a very similar computation must be used to establish the percentage gain or loss. The selling price would be replaced with the current market price. The outcome would be the unrealized gain (or loss), which would signify that since the investment had not yet been sold, the gain or loss would not have been realized.



WHY IT'S IMPORTANT TO CALCULATE PERCENTAGE GAIN OR LOSS


It's crucial to determine the gain or loss on an investment as a percentage since it illustrates the difference between what was gained and what was required to obtain the gain.


For example, if two investors each made $500 from buying the same stock, their gains would be equal. It initially seems as though both investments produced the same outcome. However, if a second investor invested only $10,000 instead of the first's $20,000 when buying the stock, the second investor would have performed better because less money was at risk.


Additionally, the second investor may make an additional profit by investing the additional $10,000 (assuming each had $20,000 to invest) in a second stock.



FEES AND DIVIDENDS


Fees

The assessment of percentage gain or loss should take into account the costs associated with investing. Reduce the gain (selling price - buying price) by the costs of investing to account for transaction costs.


Dividends

Any income or payouts received from the investment, such as dividends, would need to be added to the gain amount. A dividend is a monetary payment made on a per-share basis to shareholders.


Investors can get a more realistic picture of the percentage gain or loss on an investment by factoring in transaction costs, account fees, commissions, and dividend income.

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