How to Calculate a Stock Market Profit

May 19th, 2011 • By: Stock Research Pro • General

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:

  • Capital appreciation- The rise in stock price during the time you held the stock

  • Dividends- Any payments the company distributed to you as a shareholder as a means of sharing in company profits

    • 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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    Three Basic Financial Concepts for Investors

    May 16th, 2011 • By: Stock Research Pro • General

    The basic financial concepts that investors need to get a handle on in order to be successful are not very complex. For starters, successful financial planning starts with spending less than you earn, minimizing or eliminating debt, building an emergency savings fund, and understanding and planning for future financial needs. With these basic steps in order, investors can develop strategies for building wealth through investing. In achieving these larger, longer-term goals the following three financial concepts should be kept in mind and considered as you implement your investing strategies.

  • Time Value of Money- The time value of money is a basic financial principle that applies to both personal and corporate finance. This concept says that money you can have right away is worth more to you than the same amount will be in the future. The reason for this is that money you have access to today offers you with potential for earning and growth through investing or paying off debts. The time value of money concept is similar to the idea of opportunity cost which instructs investors to compare an investment opportunity against any opportunity they will have to forego in favor of choosing that investment opportunity.

  • Risk v. Return- The risk/return tradeoff expresses the idea that rational investors expect to be properly compensated for taking on investment risk. Simply put, the greater the return sought by an investor, the more risk they will likely need to endure. It is important for investors to understand that higher risk only allows for the possibility of higher returns and that these greater returns are not guaranteed. This rule should also serve as a reminder to investors that they need to implement an investment strategy that they are comfortable with in terms of the level of risk they can tolerate.

    • Quiz: Determine your risk tolerance

  • Diversification- Diversification is the financial implementation of the idea that you shouldn’t “put all your eggs in one basket”. For investors, diversification is about reducing risk by investing in a number of assets with varying characteristics. Asset classes including stocks, bonds, certificates of deposit, real estate, and more might be included in a well-diversified portfolio that seeks to maximize investment returns while minimizing risk. The precise mix of investment classes will depend upon the investor’s risk tolerance and their investment timeframe.

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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.