Investing basics
Tracking your real returns
Fees, dividends, time and a fair comparison: how to work out what your investments actually earned, and why the number in your brokerage app can mislead.
Wenlo EditorialHow we write our guides5 min read
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Why the number in your app can mislead
Most brokerage apps show a gain or loss next to each position. It is a useful number, but it often leaves things out: fees you paid, dividends you already received, positions you’ve closed, and how long it took. Two people can both see “+10%” and have done very differently.
Tracking your real return means answering three questions honestly: how much did I actually make or lose, how long did it take, and would something simpler have done better? None of this is complicated, and many investors find it the most reliable way to learn what is working for them.
Total return: price, dividends and fees
Total return counts everything that moved money in or out because of an investment: the price change, any dividends or interest, and every fee and commission.
Example
Total return on one position
Suppose you buy 100 shares at $50 and pay a $5 commission: $5,005 out. Over two years you receive $80 in dividends. You sell at $55 and pay another $5: $5,495 in.
Your total gain is $5,495 + $80 − $5,005 = $570. As a percentage of what you put in, that is $570 ÷ $5,005 = 11.39%. The price alone rose 10%; dividends added to the result and fees took a little away.
Taxes also reduce what you keep. They depend on the account type, how long you held, and where you live, so many people track returns before tax and handle taxes separately.
Realized and unrealized
A realized gain or loss is locked in: you sold (or closed the position), and the money is final. An unrealized gain or loss is on paper: it changes every time the price moves.
It is easy to look only at open positions and forget the closed ones, especially the losers you sold and would rather not think about. A full picture includes both. A journal built from your broker’s transaction history includes every closed trade automatically, which keeps the record honest.
Cost basis when you buy more than once
Your cost basis is what you paid for a position, usually including fees. When you buy the same stock several times, the average cost changes with each purchase.
Example
Average cost
You buy 100 shares at $50 ($5,000), then 50 more at $40 ($2,000). You now own 150 shares for $7,000, an average of $46.67 a share. A price of $48 is a gain on the position as a whole, even though the first lot is still below what you paid for it.
Brokers can match sales to purchases in different ways (first in, first out; specific lots; average cost), which affects the realized gain on each sale and its tax treatment. Check which method your account uses.
Annualized return: putting time in the picture
An 11% gain over two years is not the same as 11% in two months. To compare investments held for different lengths of time, convert the result to an annualized rate: the steady yearly return that would produce the same result.
Formula
Annualized return
Annualized return = (1 + total return) ^ (1 ÷ years) − 1
For the example: (1 + 0.1139) ^ (1 ÷ 2) − 1 = 5.54% a year.
Be careful annualizing very short periods. A 3% gain in one week works out to an enormous yearly rate, but that assumes you could repeat it 52 times in a row, which is rarely realistic.
Percentages are also lopsided: a 50% loss needs a 100% gain just to get back to where you started. That is one reason limiting large losses tends to matter more than finding large wins.
Compare with a simple benchmark
A return only means something next to an alternative. A common one is a low-cost fund that tracks the broad market, because it is what you could have earned with almost no effort.
Example
Against a benchmark
If a broad-market fund had returned 7% a year over the same two years (a hypothetical figure), it would have gained 1.07 × 1.07 − 1 = 14.49% in total. The 11.39% from the example is a solid result in isolation, and still behind the simpler choice.
Pick the benchmark before you look at the results, and use one that matches what you invest in. Comparing a portfolio of small companies with a large-company index, or a bond fund with a stock index, tells you little.
If you trade options
Options add a few things to watch. Money you receive for selling an option isn’t profit until the position is closed or expires; until then you may have to buy it back for more. If an option is exercised, the shares you buy or sell become part of the same story. A put that was assigned and then a stock that fell is one result, not a winning option trade and a separate losing stock trade.
Track option trades with the multiplier included: one contract usually covers 100 shares, so a $1.50 option is $150 per contract.
A simple routine
- Once a month or quarter, export your transactions from your broker.
- Record realized gains and losses, including fees, dividends and interest.
- Note the total value of open positions at the same date.
- Compare the result with your benchmark over the same period.
- Write down one thing you’d do differently, and one thing that worked.
Doing this regularly turns vague impressions (“I think I’m doing fine”) into numbers you can learn from, which is the whole point of keeping score.
Try it with real numbers
Import your broker’s CSV and the journal works out realized profit and loss, win rate and fees for every closed trade, options included. Try it first with sample data; no account needed.