In this article, we’re going to look at how you can calculate investment growth. This calculation is useful to check if your investment is keeping up with inflation or meeting your growth objectives.
Growth is expressed as a percentage of the original investment amount. In other words, it’s a representation of how much extra the original investment is now worth.
Take the current value of the investment, subtract the original value of the investment and express that difference as a percentage of the original investment amount. Let’s look at the formula:
Here are some examples so we can see how it works in action.
Let’s say you bought the Satrix Worldwide ETF a year ago for a price of R31.38 per ETF. A year later, the price of the ETF is R40.05. We can then calculate how much your investment grew using the formula above.
So the Satrix Worldwide ETF grew by 27.63% for the year. Nice!
It’s important to realise that growth can also be negative. When this happens, it means that the investment lost money and is now worth less than it was before. This can sometimes happen (short-term negative growth can be expected with long-term investments like equity or property ETFs).
For example, let’s say you bought the Proptrax Ten ETF a year ago for R17.93 per ETF. A year later the ETF is worth R15.91. In this case, the investment has lost money, and so we expect the growth to be negative. Let’s do the calculation:
The examples above are both related to ETF growth, but you can apply the same formula to anything else, for example, the value of your house, Bitcoin or even a listed company’s share price.
Our friend Stealthy Wealth knows his way around maths. Luckily for us he also speaks human, which is why we asked him to explain the most important maths we need to know to be good at money. This is not your average maths class. Tune in once a month and turn into a money mathemagician.