Return on Investment (ROI) at end of the year

One way to decide whether your investment is worth keeping is to look at the return on investment (ROI) over a period of one year. You could use the calendar year to track the dividend or interest received during the year. Since the year is coming to an end, it is time to work out this ROI.

In its simplest form,
ROI = Dividend Income or Interest income / cost of investment

The ROI would be most accurate when the investment was held for the whole year. If the investment were held only for part of the year, some form of pro-ration of ROI would be necessary.

Capital gain or loss on sale of investment is to be excluded from the ROI.

Another difficulty is with the denominator, ie cost of investment. During the year the cost of investment could fluctuate with sale/disposal of investment or additional purchases of the same investment. In this case, I use the average of the opening balance (start of the year) and closing balance (at end of the year) of the investment. This is the easiest way to track and the value of the ROI is good enough for my decision-making.

To give you an idea of what I come up with some investments, the following list is an example.

Investment type ROI
Singapore equity, Reits and STI ETF 3.17%
LionGlobal Singapore Dividend Equity Fund 2.99%
BlackRock European Equity Income Fund 4.08%
OCBC Preference shares (4.0%) 3.87%

Note that I did not consider the current values of these investments. It can be lower than the cost you had acquired them in the past. The current value fluctuates especially during period of volatility. In making decision, you could also consider the current value of the investment. So you have both ROI and current value of investment when making buy/sell or hold decision.

Copyright © 2016, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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