So many people even who have some investments don’t know how to calculate the Profit and Loss of the investment. Whereas perceiving investment returns and how to calculate the profit and loss are so important. Thus we are able to know that our products that we have chosen are correct and also appropriate with what we expected or not. On the other side, we can see and calculate that the investment returns given by the products are consistent with the risks on those ones or not.
There are many ways to calculate investment returns. One of those that is well-known enough is arithmetic and geometric means. The calculation that is commonly used is like the following calculation. The value of our investment on this time reduced by the first value of investment in and then the result is divided by the first value of investment in. the result of that calculation is the profit.
For the instance, when you buy a share of stock of the certain company, the value of stock is multiplied by certain value of money for example $1. And then, after 1 year later, the stock prices are increased to be $1.5, accordingly the profit of investment that we have gotten from the capital gain is $1.5 minus $1 equal to $0.5. And then the result $ 0.5 is divided by $1 equal to 0.5 and then multiplied by 100 percents equal to 50 percents. Therefore we can say that the profit we have gotten is amount of 50 percents.
The same calculation can be done with the investment on the product such as unitlinked and mutual funds whose products use Net Asset Value (NAV) as benchmark price of the unit. For example, we invest $1.000 at the mutual funds shares with first NAV $1 each unit. It means that we have $ 1000 divided by $1that equal to $ 1.000 units. Then, when the NAV have been increased to be $1.2 each unit, accordingly the investment returns are increased for $1.2 - $ 1 equal to $0.2 and its result is divided by $ 1 equal to $ 0.2 and its results is multiplied by 100 percents equal to 20 percents. Therefore the profit we have gotten is 20 percents.
And vice versa, when the investment is decreased, accordingly the investment returns will be minus if the last value of the investment is smaller than the first value of the investment. Although the loss investment at capital markets can be reversed to be profit again if we are on the long term investment, we have to remember that the profit or the loss calculated is only on paper, called unrealized profit/loss. The profit or the loss will be ours when the investments are already to be sold.
Therefore , start to invest and make the calculation to the investment returns that have been bred. But don’t forget when you have to stop, because the value always up and down at anytime.