Talk:Rate of return/Archives/2014

Dollar cost averaging
The article appears to only discuss return calculation based on a lump sum investment. We should also discuss the return calculation when money is invested over a period of time, such as DCA. --Kalbasa (talk) 16:56, 6 January 2009 (UTC)


 * Have you checked out the Dollar cost averaging article?


 * Jonathan G. G. Lewis 03:08, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)


 * I see from your comment on the Talk page for that article that you have already seen it.


 * Jonathan G. G. Lewis 03:56, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)

Re-write
I have substantially rewritten the early parts of this article.

Jonathan G. G. Lewis 12:43, 18 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)

I have revised everything up to the end of the 'Calculation' section. The following sections look rather repetitive, but I will stop here, at least for now.

Jonathan G. G. Lewis 06:27, 19 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)

I have removed the first paragraph under 'Uses', because it is unnecessary to have a second definition, the definition is confusing and refers imprecisely to cash flow:


 * ROI is a measure of cash generated by or lost due to the investment. It measures the cash flow or income stream from the investment to the investor, relative to the amount invested.  Cash flow to the investor can be in the form of profit, interest, dividends, or capital gain/loss.  Capital gain/loss occurs when the market value or resale value of the investment increases or decreases.  Cash flow here does not include the return of invested capital.

Jonathan G. G. Lewis 08:22, 19 November 2013 (UTC)

I have made a few more changes to following sections, but I can see plenty of room for further work to improve the article.

Jonathan G. G. Lewis 09:47, 19 November 2013 (UTC)

I have removed the first paragraph under 'Summary: overall rate of return', for the same reason as I removed the first paragraph under 'Uses', namely that it is again unnecessary to have a second definition, the definition is confusing and refers imprecisely to cash flow. It read:

Rate of Return and Return on Investment indicate cash flow from an investment to the investor over a specified period of time, usually a year.

Jonathan G. G. Lewis 10:50, 19 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)

I have just attempted some more corrections and improvements within the section rather cryptically entitled 'Cash and potential cash returns', although I do not understand the title, and I do not see the connection between the title and the content, so I may come back later and change it. The rest of the article below this point I find rather repetitive and irrelevant. Maybe some other editor can extract the important points about US rules on reporting returns.

Jonathan G. G. Lewis 08:45, 20 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)

I am about to attempt to break up what is currently the final section:


 * Summary: overall rate of return[edit]


 * ROI is a measure of investment profitability, not a measure of investment size. While compound interest and dividend reinvestment can increase the size of the investment (thus potentially yielding a higher dollar return to the investor), Return on Investment is a percentage return based on capital invested.


 * In general, the higher the investment risk, the greater the potential investment return, and the greater the potential investment loss.

I have already added the point made in the first paragraph to the definition at the top of the article.

I will now move the point made in the second paragraph to the top of the section entitled "Returns when capital is at risk".

Jonathan G. G. Lewis 09:05, 21 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)

I have changed my mind about the second paragraph. I have struggled to make it a simple free-standing logical point, but I have failed, and just removed it altogether. It is a statement of orthodoxy, but on its own with no evidence, argument or supporting citation provided, it is a rather uninformative bald statement, which I think belongs in context in an article on investment risk, rather than on its own in this more basic article.

Jonathan G. G. Lewis 09:40, 21 November 2013 (UTC)

Everything in the section Reinvestment when capital is at risk: rate of return and yield and everything below that section I find to be repetitive and long-winded, and as a consequence it is not very clear. I have not touched these yet, but I invite any interested expert on the subject to have a go at sprucing up the rest of the article.

Jonathan G. G. Lewis 04:11, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)

I have removed both the confusing reference to yield and the calculation of ROI from the example I have now also retitled as US income tax on investment returns because I think it was both unnecessary and incorrect.

The formulae for the undefined term reinvestment factor in the section headed Total returns look nonsensical, and their application in the example below looks completely wrong, but I have decided to leave it to an expert on US income tax to correct this.

Jonathan G. G. Lewis 08:07, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)

I have gone back on my previous decision, and I have removed the suspect formulae for reinvestment factors, and the line from the table in the example referring to them, and corrected the calculations of returns.

Jonathan G. G. Lewis 09:08, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talk • contribs)

Total Returns
Could somebody justify or cite a source for the definition of Total Returns that is given on this page? The way the Reinvestment Factor is used here, your returns are going to be too strongly affected by the final period's Distribution--make that zero, and that undermines distributions from all other years.

I believe it makes more sense to simply multiply successive Reinvestment Factors rather than adding 1 after multiplying with Di/Pi. Morningstar, Inc. takes this approach, as can be seen on page 19 of the document called "Morningstar Rating™ for Funds Methodology", which can be found here.

I couldn't find any useful results for the term Reinvestment Factor on Google search except those that leech from this Wikipedia page. So if this is wrong, it had better be checked soon because it's propagating everywhere. The next formula on the page (Annual Average Geometric Return, as required by SEC) makes perfect sense.

-Ankurtg (talk) 06:07, 14 July 2010 (UTC)


 * I rewrote this section a while back.Jonathan G. G. Lewis 12:50, 23 August 2014 (UTC)