The return realized by an investor during a real or expected period of time, holding period return is calculated as income plus price appreciation during a specific time period, divided by the investment's cost.
Holding Period Return = (P1 + D - P0) / P0
P1 = Ending Value of Investment
P0 = Beginning Value of Investment
D = Dividend or Cash Flow
Example: Three years ago, Sally Jones paid $12.25 a share for 100 shares of First Trust Financial Services Corp. During that time, she has received 12 equal quarterly dividend payments of 8 cents a share. Today, the stock is worth $19 a share. What is Sally's holding period return for the investment?
Holding period return = (19 + .96 - 12.25) / 12.25 = .63 or 63%
In a long position, holding period refers to the time between an asset's purchase and its sale. In a short sale, the holding period is the time between when a short seller initially borrows an asset from a brokerage and when he or she sells it back. In other words, the length of time for which the short position is held.
An investment's holding period is used for a number of different functions, including evaluating an investment's performance, calculating loss or gain from the investment and determining whether an investment is worthwhile. The holding period of an investment is also used to determine how the capital gain or loss should be taxed because long-term investments tend to be taxed at a lower rate than short-term investments.
Managing WealthTotal return measures the rate of return earned from an investment over a period of time.
Managing WealthAn investor who is evaluating the performance of a portfolio manager must take into consideration the impact that any contributions or withdrawals made by the investor will have on the overall ...
InvestingDiscover some of the benefits that come from buying and holding stocks for longer periods of time, such as tax savings and risk minimization.
Financial AdvisorLong-term investing is relative depending on many things, but really, how long is it? We take a look back to try and find the answer.
InvestingThe expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome.
InvestingA return is the gain or loss a security generates over a period of time.
Financial AdvisorThe sun appears to be coming out for value stocks again. But before you advise clients to invest, here's what you should consider.
InsightsHolding periods should be established after analysis of market cycles, to determine the most advantageous timing for entries and exits.
InvestingHow much are your investments actually returning? Find out why the method of calculation matters.
TradingThese are two investing practices that seek to counter our natural inclination toward market timing by canceling out some of the risk.