how to calculate return on etf

Calculating the return on an ETF involves gathering historical price data, calculating the dividend yield if applicable, and using a formula to determine the percentage gain or loss over a specified investment period.

Oct 13, 2024 at 08:53 pm

How to Calculate Return on ETF

1. Determine the Investment Period

The first step is to define the period over which you will calculate the return. This could be a specific time frame, such as a month, quarter, or year, or the entire period since you invested in the ETF.

2. Gather Historical Data

You will need to gather historical data for the ETF's unit price. This information can be found on financial websites or from your brokerage account.

3. Calculate the Beginning and Ending Unit Price

Identify the unit price of the ETF at the beginning and end of the investment period.

4. Calculate Dividend Yield (Optional)

If the ETF pays dividends, calculate the dividend yield for the investment period. To do this, divide the total dividends distributed by the average unit price during the period.

5. Calculate Total Return

The total return is calculated as follows:

Total Return = (Ending Unit Price + Dividend Yield) / Beginning Unit Price - 1

6. Multiply by 100 to Convert to Percent

Multiply the total return by 100 to convert it to a percentage. This value represents your return on investment, expressed as an annualized percentage.

Example:

Let's say you invested $1,000 in an ETF that had a unit price of $20 at the beginning of the investment period. After one year, the unit price had increased to $25, and the ETF paid dividends totaling $10.

Step 1: Investment period = 1 year
Step 2: Historical data: Beginning unit price = $20, Ending unit price = $25
Step 3: Beginning unit price = $20, Ending unit price = $25
Step 4: Dividend yield = $10 / (($20 + $25) / 2) = 0.2
Step 5: Total return = (25 + 0.2) / 20 - 1 = 0.3
Step 6: Return on Investment = 0.3 * 100 = 30%

Therefore, your return on investment for this ETF during the one-year investment period was 30%.

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