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Finding the total percentage gain or loss for a portfolio requires a few simple calculations. Investors should first understand how percentage gains or losses are found on an individual security.
Key Takeaways
- A gain is when the market value of an asset exceeds the purchase price of that asset.
- An investor incurs a loss when the current value of an asset is lower than the price at which it was purchased.
- Portfolios may include assets such as domestic or international stocks, bonds, and cash.
What Are Gains and Losses?
A gain is when the market value of an asset exceeds the purchase price of that asset. When an investor incurs a loss, the current value of an asset or investment is lower than the price at which it was purchased.
To find the net gain or loss of a stock, subtract the purchase price from the current price and divide the difference by the purchase prices of the asset. If an investor buys a stock today for $50, and tomorrow the stock is worth $52, their percentage gain is 4% ([$52 – $50] / $50).
Calculating Return
Portfolios may include various assets such as balanced stock funds or EFTs or a mix of domestic or international stocks, bonds, and cash. Finding a daily return on a portfolio requires a different approach than analyzing one asset.
Some financial institutions recommend that investors annually rebalance their portfolios, analyzing risk, return, tax policies, and costs to be sure their investments meet their personal goals.
Because the stocks will usually have different purchase prices, a percentage gain in one security may not be equivalent to an equal percentage gain in another. Simply adding the individual percentage returns won’t provide an accurate measure of portfolio return. By adjusting the method of finding a stock’s return, investors can find the percentage return of a portfolio.
Instead of using the purchase price and current value of one stock, investors will calculate based on the total value of the portfolio. For example, on June 1st, a portfolio is valued at $14,500. After a week of market activity, the portfolio value increases to $15,225 on June 8th. The percentage return on the portfolio for the week is 5% ([$15,225 – $14,500] / $14,500).
How Do Investors Affect Their Portfolio Returns?
An investor’s age, risk tolerance, and investment objective can affect the returns of a portfolio. An investor close to retirement may want to protect their portfolio earnings and likely will invest in a mix of cash, money markets, and short-term bonds with lower risk and lower returns. A young investor may choose high-risk equity investments or long-term funds for their portfolios.
What Is a Balanced Investment Strategy?
A balanced investment strategy combines asset classes in a portfolio to balance risk and return. A common strategy for a balanced portfolio is divided between stocks and bonds, either equally or with a weighted formula, such as 60% in stocks and 40% in bonds.
When Do Investors Pay Taxes on Portfolio Gains?
Capital gains tax is levied on the profit an investor earns when an investment is sold, and the tax is owed for the tax year during which the asset is sold.
The Bottom Line
Investors can calculate their gain or loss percentage based on the total value of the portfolio. Portfolios are assembled based on an investor’s financial goals, risk tolerance, and investment timeline. Portfolios may include assets such as domestic or international stocks, bonds, and cash.