How to Calculate Ror

Calculated Return

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How to Calculate Rate of Return (ROR)

Understanding the performance of your investments is critical for financial planning. The Rate of Return (ROR) is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment's initial cost. This metric allows investors to compare the efficiency of different assets, regardless of their size or price point.

The Basic ROR Formula

To manually calculate the rate of return, you need to track three main variables: the initial amount you spent, the current value of the asset, and any additional income generated by the asset (like dividends or interest payments). The formula is as follows:

ROR = [(Current Value – Initial Value + Income) / Initial Value] × 100

Step-by-Step Calculation Guide

1. Determine Initial Value: This is the total cost of the asset when you purchased it, including any commissions or fees.
2. Determine Current Value: This is what the asset is worth today if you were to sell it.
3. Calculate Net Profit: Subtract the initial value from the current value. Add any income received (dividends for stocks, rent for property, or interest for bonds).
4. Divide by Cost: Take that net profit figure and divide it by your original initial value.
5. Convert to Percentage: Multiply the result by 100 to get your final ROR percentage.

Practical Example

Imagine you purchased shares in a technology company for $1,000 (Initial Value). A year later, the shares are worth $1,200 (Current Value). During that year, the company paid you $50 in dividends (Income).

• Gain in Value: $1,200 – $1,000 = $200
• Total Gain with Dividends: $200 + $50 = $250
• Calculation: ($250 / $1,000) = 0.25
• Result: 25% ROR

Why Tracking ROR Matters

Calculating the Rate of Return is essential for several reasons:

• Benchmarking: Compare your portfolio performance against market indices like the S&P 500.
• Asset Allocation: Identify which assets are underperforming and decide whether to reallocate funds.
• Goal Tracking: Ensure your investment growth is on track to meet long-term objectives like retirement or buying a home.

Note: This calculator provides a simple (nominal) rate of return. It does not account for inflation or taxes, which can impact your "real" rate of return.