How to Calculate a Stock Market Profit
In order to calculate a profit made in the stock market, you need to look at all of the relevant factors around the purchase, sale, and income (if any) associated with the transaction. Stock market investing has historically proven to provide a greater profit opportunity than most other types of investments, but it is important for investors to track their profits for tax purposes. It can also be helpful to track the annualized returns you are seeing from your stock market investing in order to compare these profits against other types of investment opportunities.
Historic Stock Market Returns
When evaluating stock market returns over time, many investors will look at the annualized returns of the Standard & Poor’s 500 (S&P 500). This index is primarily comprised of 500 large-cap U.S. stocks (a few do have headquarters outside of the United States) and is a well-regarded measure of the overall performance of the market. When analyzing the total return delivered by the S&P 500 index over time, it is important to consider the impact of dividends as these payments have proven to provide a significant contribution to total return (more than 40% over the last 80 years).
The Factors Used to Calculate Stock Profit
The two primary components that factor into profitability include:
Any costs associated with the buying and selling of the stock should be deducted from your profits in order to capture the real return of the transaction. In addition, it can be helpful to factor in the length of time the stock was held in order to annualize the return for easy comparison to other types of investment options.
The calculator below allows you to analyze a stock transaction on the bases of actual dollar gain (or loss), the total return percentage, and the annualized return.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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