This free online Stock Return Calculator will calculate the return on investment (current yield and annualized holding period yield) based on the average periodic dividend (if any) and on the price per share when sold.
Do you know the answers to questions such as "What is a Stock?", "Why invest in stocks?", or "When should I invest in stocks?"
If not, then it may help to read the following explanations related to what stocks are, how they compare to bonds, why others invest in them, and whether or not stock investments may or may not be right for you at this time.
The basic definition of stock, is a certificate indicating partial ownership of a company. Unlike bonds (see What are bonds?), where you are basically granting an interest-only loan to the borrower (you are a lender), purchasing a stock makes you part owner of the company. And the more shares you own of a specific company, the greater your percentage of ownership.
For me, investing in my own businesses (ME, Inc.) brings me the highest emotional returns on the time and money invested.
Before leaving this page, be sure to read my 5 reasons why you should consider buying shares of YOU, Inc instead of THEM, Inc.
When it comes to raising start-up or working capital, a company can either borrow money by issuing bonds, or they can sell off shares of ownership in the company.
In the case of issuing bonds, the company will be obligated to pay periodic interest (coupon payments) on the loans as well as having to pay back the principal borrowed on the day the bonds mature.
In the case of selling off shares of ownership, the company is not obligated to make periodic interest payments (though they may choose to pay periodic dividends) nor are they obligated to buy back the shares.
From an investors stand point, investing in bonds typically provides a fixed, periodic income (interest or coupon payments) and in most cases they can expect to get their initial investment back on or before the date the bond matures.
In the case of investing in stocks, the investor has the opportunity to share in the success of the company rather than just receiving a fixed return on investment. However, if the company goes out of business, the stockholder could lose all of their initial investment. In other words, stockholders share in the profits and in the losses.
To make money of course. But how do you make money investing in stocks? Basically you can make money in one of three ways:
Of course, if you're a shareholder in a company that goes belly up, so will the value of your shares. This is one reason I personally choose not to invest in stocks of other companies, but instead choose to invest in my own company.
I can't speak for others, but here's the five main reasons I choose to invest in my own business rather than invest in other businesses:
Once you find a work that you love, the last thing you will want to do is to risk losing it. So for me, the risk of losing my savings in the stock market would also put me at risk of being forced out of what I love doing and into something I have to do. Therefore I choose to reinvest a portion of the profits back into my own business, and then invest the rest in minimum risk investments (namely CD Laddering).
What's that? You say you don't have your own business? I beg to differ. Your life, just like my life, is a business in and of itself. We both have the same amount of time available in a day, and we both have time, talents, skills and abilities that we use to serve others in exchange for income. If you choose to only serve an employer instead of customers, that's up to you. The question is, are you happy about your choice?
If you are not happy with serving an employer, then the only way to change that is to give yourself the financial freedom you need to build your own business during the time you're not at work. The lower your bills and expenses, and the less debt you have, the more freedom you will have to discover and a pursue a work that you love and can believe in.
Throughout this site I have been divulging bits and pieces of the steps I took to go from being trapped by debt in a job I hated, to having the financial freedom to work at something I truly love, and in the time and place of my own choosing (you can read my story here). When you boil it all down, the process is as simple as doing the opposite of what most people are doing.
If you are one of those people who can sleep at night while someone else is in control of your destiny, then my advice would be to only invest in stocks once you have a fully funded, government insured emergency fund (3-6 months of household income) and you have paid off all of your high-interest debt. If you're making minimum payments on 18% credit card debt, then it makes no sense to me as to why you would want to risk losing your hard earned money in exchange for the remote chance to earn a mere 10% return -- so invest in your debt first.
With that, let's use the Stock Calculator to calculate the return on a stock investment in terms of current yield and annualized holding period yield.
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Share price at purchase: The purchase price of each share purchased.
Number of shares purchased: The number of shares purchased.
Commission paid at purchase: The total or per share commission paid to purchase the shares. If you select Total, the stock calculator will convert the total into cost per share.
Average periodic dividend per share: Select the frequency the dividends are paid and enter the corresponding dividend paid per share.
Months owned: The number of months the shares have been owned. The stock calculator will convert months owned into years owned for the purpose of calculating annualized holding period yield.
Share price when sold: The price per share at the time the shares are sold. Or enter the price per share as of today to calculate a what-if scenario.
Commission paid at sale ($): Enter the total or per share commission paid to sell the shares. If you select Total, the stock calculator will convert the total into cost per share.
Gross return: The stock calculator arrives at this result by taking the selling price per share multiplied by the number of shares, minus the total commission paid to sell the shares.
Less total investment: This is the purchase price per share multiplied by the number of shares, plus the total commission paid to purchase the shares.
Equals profit from stock sale: This is what is left after subtracting the total investment from the total return.
Plus dividends: This is the total of all dividends paid for the number of months owned. To arrive at this figure, the stock calculator multiplies dividend per share times the number of dividends paid per year, and then multiplies that result by the number of years, and finally multiplies that result by the number of shares.
Equals net return on investment: This is the net dollar return on the purchase, ownership, and sale of the shares of stock after accounting for commissions and dividends.
Current yield: This is the current yield at the time of the sale. To arrive at the current yield, the stock calculator divides the annual dividend per share by the price per share at the time of the sale.
Annualized holding period yield: This is the annualized holding period yield. To arrive at this figure, the stock calculator divides the total return on investment by the total original investment, and then multiplies that result by 1/N, where N is the number of years the investment is held.