What's Your Annual Rate of Return? (And Why It Matters)

The success of any investment can be is about building value onto what you already have. A stock becomes more valuable as it rises in market price, just as an investment home becomes more valuable as you make improvements and the neighborhood price appreciates. In order to calculate how well your investments are doing, however, you need a relative number. A number that will tell you just how much value you have added or lost in comparison to your investment.

Rate of Return (ROR)

This number is known as the Rate of Return, sometimes written ROR. It is the measured gain or loss of an investment over a set period of time. The rate is calculated as a percent which shows how much of your initial investment was built or lost over a period of time. However, there are many different time frames in which you can calculate the ROR and some are more useful than others in certain circumstances. 

ROR is usually calculated as the initial value minus the final value, then divided the initial value then divided by the initial value and again multiplied by 100%. And if you don't do word problems:

ROR = [init value - final value] / init value X 100%

You may want to calculate how quickly you're adding value on a month-to-month basis or at the beginning and end of an improvement project. Any time period can be used.

Annual Rate of Return (Annual/Yearly ROR)

The annual rate of return simply uses one calendar year in the rate of return calculation. Therefore, at the beginning of each year you would take note of how much your investments are worth. Then, at the end of the year, you take the number for how much your investments are worth. If there is no change, then your rate of return is 0 from year to year. If there is a chance, follow this formula

Annual ROR = [jan value - dec value] / jan value x 100%

This formula will calculate your percentage of growth over the year in one easy market-er-friendly percentage number.

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Annual ROR calculations are vital for tracking the success of your own investments and determining how to make greater returns in the future. For more investment insights or help with your value analysis, contact us today!