When it comes to personal finance, many investors want to know how much money they are making on the principal amount they invested. That amount is called the cumulative return. Calculating the cumulative return allows an investor to compare the amount of money he is making on different investments, such as stocks, bonds or real estate. To calculate the cumulative return, you need to know just a few variables.
Understand the equation associated with calculating cumulative return. The equation reads:
Current price of security - original price of security / original price of security
The current price refers to the amount of money the security is currently worth. The original price refers to what you paid to acquire that investment.
Plug in the variables to the equation. Look at your investment portfolio and find the current price and original price for an investment you are currently holding. Say you bought $10,000 worth of stock and it is now worth $13,000. The equation would read:
$13,000 - $10,000 / $10,000 = cumulative return
Perform the calculation. Using the above example, the calculation would be:
$3,000 / $10,000 = .30
Convert the decimal to percentage form. The cumulative return would be 30 percent.
It should be noted that cumulative returns can be negative as well. For instance, if in the above example the investment was worth $7,000 currently, then the return would be -30 percent.