Forgetting to include dividends in your calculation will underestimate your total return.
A simple way to invest in the stock market is to use an index fund. This investment is designed to match the progress of a specific market. The S&P 500 is a commonly used index fund. This index matches the prices of 500 large cap, actively traded companies in America. When calculating the return of your S&P 500 shares, you must include the impact of dividends and brokerage fees or you will not get a correct estimate of your investment performance. The simple return calculation accounts for dividends and brokerage fees and is a useful calculation for investors.
Instructions
Simple Return
1. Find the cost basis of your shares. This is the total cost of buying the shares. Add the initial S&P 500 stock purchase price to all brokerage fees to calculate the cost basis.
2. Calculate the net proceeds of selling the S&P 500 shares. Find the current market price of the S&P 500. Subtract brokerage fees to find the net proceeds of the sale.
3. Add the net proceeds to the amount of dividends paid while holding the share. This gives the total gain selling the share.
4. Divide the net proceeds and dividends by the cost basis of the share. Subtract 1 from this amount and you have the simple return of the S&P 500 with dividends.
5. Example: A share has a initial price of $4,000, a current price of $5,000, brokerage fees of $50, and total dividends of $500.
Return = (Net Proceeds+Dividends)/Cost Basis - 1
= ($4,950 + $500)/$4,050 - 1
= .3457 = 34.57 percent
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