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What Is the Percentage Gain or Loss?
The percentage of gain or loss on an investment indicates how much your investment had grown or fallen in value when you sold it. It reflects the performance of your investment and it can provide insight into the success of your investment strategy.
Key Takeaways
- Investors must first determine the original cost or purchase price when calculating the percentage gain or loss on an investment.
- Next, the purchase price is subtracted from the price at which the investment was sold to arrive at the gain or loss on the investment.
- Take the gain or loss from the investment and divide it by the original cost of the investment or purchase price.
- Finally, multiply the result by 100 to get the percentage change in the investment.
Formula for Percentage Gain or Loss
Calculating the percentage gain or loss is straightforward and quite easy. You must determine what you gained or lost when you sold your investment so you first have to know how much the investment originally cost: its purchase price. Then subtract that original cost from the price at which you sold the investment for the amount of your gain or loss.
You can obtain the original purchase price from your broker if you don’t have it. Brokerage firms provide trade confirmations for every transaction electronically or in paper form. They also provide statements of account activity. Both should show you the original purchase price and the sale price as well as the financial details of the investment.
The ultimate equation looks like this:
Investment percentage gain =purchase pricePrice sold − purchase price×100
The percentage gain or loss calculation produces a percentage that represents an increase (your gain) or a decrease (your loss) from the original investment.
The dollar amount of the gain or loss is divided by the original purchase price and multiplied by 100 to obtain the percentage.
You can also calculate an unrealized gain or loss that you haven’t realized yet because you still own your investment. Substitute the current market price for a selling price.
The selling price is lower than the original purchase price, also called the cost basis, and there’s a loss on the investment if the percentage is negative. If the percentage is positive, the selling price is greater than the original purchase price and there’s a gain on the investment if the percentage is positive.
Why Percentage Gain or Loss Is Important
The percentage gain or loss goes beyond the dollar amount of the gain or loss in giving you information about the result of your investment. A $150 gain on an investment amount of $500 is a 30% gain but your percentage gain would be 15% if you made $150 on an investment of $1000.
The percentage gain provides you with a better idea of the success of your investment than dollar amounts alone might. It also gives you a clearer method of comparing the performances of all your investments.
Important
You might also find it useful to look at percentage gains or losses when comparing potential investments.
Examples of Calculating Percentage Gain or Loss
The percentage gain or loss calculation can be used for many types of investments. Here’s an investment showing a percentage gain.
Stock
Let’s say an investor bought 100 shares of Intel Corp. (INTC) at $30 per share. The initial investment cost is $3,000 ($30 x 100).
The 100 shares were sold for $38 per share. The sale proceeds would be $3,800 ($38 x 100). The dollar value of the gain on the investment is $800 ($3,800 – $3,000).
The percentage gain calculation would be:
($3,800 sale proceeds – $3,000 original cost) / $3,000 = 0.2667 x 100 = 26.67%.
The percentage gain can also be calculated using the per-share price:
($38 selling price – $30 purchase price) / $30 = 0.2666 x 100 = 26.67%.
Index
The same calculation would apply if an investor wanted to determine how the Dow Jones Industrial Average (DJIA) has performed over a certain period. The DJIA is an index that tracks 30 stocks of the most established companies in the United States.
Let’s say that the Dow opened at 24,000 and closed at 24,480 by the end of the week.
The percentage gain calculation would be:
(24,480 – 24,000) / 24,000 = 0.02 x 100 = 2%
Fees and Dividends
Investing doesn’t come without costs and this should be reflected in the calculation of percentage gain or loss. These examples don’t consider broker fees and commissions or taxes. Reduce the gain (selling price – purchase price) by the costs of investing to incorporate transaction costs.
Fees
Let’s say that the investor was charged $75 in fees from the broker. The percentage gain would be calculated like this:
(($3,800 sale proceeds – $3,000 original cost) – $75) / $3,000 = 0.2416 x 100 = 24.16%.
We can see that the brokerage fee reduced the percentage rate of return on the investment by more than 2% or from 26.67% to 24.16%.
Dividends
The amount would have to be added to the gain amount if the investment paid out any income or distributions such as a dividend. A dividend is a cash payment paid to shareholders and is configured on a per-share basis.
Let’s say Intel paid a dividend of $2 per share. The investor owned 100 shares so Intel would pay $200 split evenly into four quarterly payments. The percentage gain would be calculated like this:
(($3,800 sale proceeds – $3,000 original cost) + $200) / $3,000 = 0.3333 x 100 = 33.33%.
Assuming there were no brokerage fees and the stock was held for one year, we can see that the dividend increased the percentage rate of return for the investment by more than 6%, from 26.67% to 33.33%.
We would add $100 to the gain amount instead of $200 if the stock wasn’t held for one year and was held for two quarters instead. The quarterly dividend payments would be $50 each.
Investors can obtain a more accurate representation of the percentage gain or loss on an investment by incorporating the transaction costs, account fees, commissions, and dividend income.
How Will I Use This in Real Life?
Understanding the percentage gain or loss of a security helps investors determine the significance of a price movement. Investors can use percentage change to compare an investment’s historical performance or as a measure of relative strength or weakness when comparing an asset to its peers.
Percentage gain or loss also helps investors determine a security’s volatility by the size of its change.
Is It Hard to Calculate an Investment’s Percentage Gain or Loss?
No, it’s not. Start by subtracting the purchase price from the selling price and then take that gain or loss and divide it by the purchase price. Finally, multiply that result by 100 to get the percentage change.
You can calculate the unrealized percentage change by using the current market price for your investment instead of a selling price if you haven’t yet sold the investment but still want an idea of a return.
What Are Useful Percentage Figures for Investors to Know?
A stock or stock market correction is often defined as a 10% decline from the stock’s or index’s most recent peak. A bear market is typically said to have begun when the market declines by 20%. There’s no specific threshold for stock market crashes but they’re generally considered to involve an abrupt double-digit percentage drop in a stock or index over a short time.
What Other Factors Should I Consider When Calculating an Investment’s Percentage Gain or Loss?
The publicly quoted percentage change of a security doesn’t factor in fees such as commissions, slippage, and holding costs. Investors should factor these into their calculations for a more accurate representation of an investment’s percentage gain or loss. They should add distribution payments such as dividends into their percentage calculations to help determine an investment’s total returns.
The Bottom Line
Understanding the percentage gain or loss of an investment helps investors make performance comparisons and assess risk.
Calculating a security’s percentage change is straightforward. It requires only the purchase and sale prices. Investors can determine unrealized percentage movements by replacing the sale price with the current market price.
Investors should factor in costs such as commissions as well as income received from distributions like dividends for a better representation of an investment’s percentage gain or loss.
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