Tracking Annual Returns

[LiseE]

I started a spreadsheet tracker with our investments.  I have one worksheet with the entire portfolio and all of the calcs for overall portfolio return.  Then  I have separate worksheets for each year to see how the portfolio performs each year. 

My question is this .. I have an equity that I bought in 2016 for let's say $10.  So my actual cost basis for this equity is $10 per share.  What is my cost basis for 2021?  Do I use this $10 actual cost basis or do I use the value of the equity as of Jan 4, 2021?  I'm currently using the later and it's killing me to see a hefty loss on this one equity .. but is it really accurate?  The big RED value I'm seeing is based on the value of the asset on Jan 4, 2021 .. not the value I actually bought it.

But I'm trying to measure my portfolio return for 2021 on this particular worksheet.

Thoughts?  Am I doing it right?

Lisa

[secondcor521]

For tax purposes, your basis is what you paid.

For investment tracking purposes, your initial value is whatever it is worth at the beginning of the measurement period.  So if you're trying to calculate 2021 YTD returns, then you'd start with whatever the value was on 1/1/2021.

And yes, if the shares have dropped in value since 1/1/2021, then that will have a negative impact on your annual performance for 2021.  (How could it be otherwise?)  The size of the negative impact will of course depend on the price per share decline in value and how big of a position this stock is relative to your overall portfolio.

Read up on XIRR() by the way, and be sure to account for dividends, and additions to and distributions from the portfolio to get an accurate answer.

[talltexan]

We are glad to have you in the community!

I know it's frustrating to have an investment be down, but it sounds like it's only down over the last six weeks. You want to plan a strategy that will enable strong returns for a decade or more, and that may mean there are drawdowns on the way, particularly if you're taking the riskier path of selecting individual stocks.

[MustacheAndaHalf]

If you've held something for 5 years that recently dipped in value, you might want to read up on that asset and make sure it's something temporary.

If this asset was accidentally sold right now and your account had the cash from the sale... would you immediately buy this asset again?  If you wouldn't pay for it, it might be time to cash out.

[vand]

You mark to market price, so if your $10 stock is now $8 then that's a -20% return over the total holding period.

[LiseE]

So the stock was purchased back in 2016 at $225.  I actually inherited this portfolio from my Dad when he passed 7 years ago .. I kept some of his original investments .. this is one of them.
Market price today is $325.  Overall, the investment has done well so far.  But if I am looking at 2021 return rate, this stock was worth $350 on Jan 4, 2021 and today $323.  So it's -7.63% if I'm looking at 2021 only. 

The stock is UNH

So in 2020, the return was 19% and overall the return is over 44% .. so it's done well .. I have too large of a position so I'm might sell some but I just wanted to make sure I was calculating the 2021 return correctly, using the price of the security on Jan 4, 2021 and not the price that I purchased it back in 2016.

- Lisa

[vand]

So the stock was purchased back in 2016 at $225.  I actually inherited this portfolio from my Dad when he passed 7 years ago .. I kept some of his original investments .. this is one of them.
Market price today is $325.  Overall, the investment has done well so far.  But if I am looking at 2021 return rate, this stock was worth $350 on Jan 4, 2021 and today $323.  So it's -7.63% if I'm looking at 2021 only. 

The stock is UNH

So in 2020, the return was 19% and overall the return is over 44% .. so it's done well .. I have too large of a position so I'm might sell some but I just wanted to make sure I was calculating the 2021 return correctly, using the price of the security on Jan 4, 2021 and not the price that I purchased it back in 2016.

- Lisa

Firstly, not sure where you get the $225 from.. looking at the charts the the shareprice was around $120 in 2016, so overall you have a very good return since then just in capital growth, not even including any dividends.

secondly, share prices bounce around all the time. A sell off from $360 to $324 is nothing to worry about.

I mean, you've just about tripled your money over 5 years. That's an annualised rate of return of about 24%.  That's absolutely fantastic.

Should you sell it for index funds? It depends if you feel like the company's prospects are still better than average. Individual stocks are definitely more risky, but you might be OK with that risk.

If its keeping you awake at night then sell down to sleeping point.

[MustacheAndaHalf]

To reinforce what vand said, UNH peaked at $164/sh in Dec 2016 according to Yahoo Finance (which also shows no stock splits since 2016).
https://finance.yahoo.com/quote/UNH/history?period1=1451606400&period2=1483142400&interval=1mo&filter=history&frequency=1mo&includeAdjustedClose=true

I'm guessing the recent stock price dip is owing to the CEO departing the company next month, and a new CEO taking over.
https://www.bloomberg.com/news/articles/2021-02-08/unitedhealth-s-departing-ceo-to-get-salary-bonus-for-two-years

[secondcor521]

So the stock was purchased back in 2016 at $225.  I actually inherited this portfolio from my Dad when he passed 7 years ago .. I kept some of his original investments .. this is one of them.

If your Dad passed away 7 years ago, that was in 2014.  If you purchased the stock in 2016, then I don't understand how you kept this as one of the original investments.

But anyway, if you did happen to actually inherit stock from your father, then your basis is the value as of the date of his death (or the alternative valuation date if his executor made that election - this is rare).  When you go to sell any of those stocks, make sure to use the stepped up basis.  If your executor or broker was on the ball they may have done this for you already.

[talltexan]

One trap when tracking investment returns over the very short run: a modest change (in this case a 10% drop) will work out to be a frightening annualized return percentage. For a Fall from $360 to $324 in five weeks, I'm getting something really scary--like a -98% annualized rate of return--because it's basically losing 10% of the value in 1/10 of the year.