Return on Investment (ROI)

Re-investing your dividends and adding to investments on a frequent basis can help increase your profits and can reduce volatility.  But it greatly clouds your ability to determine what those returns actually are.

Luckily, the DRIP Wizard takes the calculation of Return on Investment very seriously.  ROI is taken seriously because it is important and, too often, overlooked.

The DRIP Wizard uses advanced formulas to give you the most accurate ROI values for your investments.  The program will calculate each of your stock's annual Return on Investment using advanced, time-value-of-money (TVM) formulas.  These formulas give the most accurate ROI possible.

To gain a better understanding of how ROI can be treated, here is an example:
     1/1/99 - Buy 10 Shares XYZ at $10 per share ($100 investment)
     12/1/99 - Buy 10 Shares XYZ at $10 per share ($100 investment)
     12/31/99 - Sell 20 Shares XYZ at $11 per share ($220 sold)

The total profit in the example is $20.  The total investment was $200.  So, from a primitive perspective, we could calculate the ROI as $20/$200--which is 10%.  This is a correct calculation of the ROI, but it doesn't respect the time-value-of-money.  In the DRIP Wizard, this ROI is called the primitive ROI.

Time-value-of-money theory takes into account the total time that the principal was tied up into the investment.  For the shares purchased on 1/1/99, the $100 was tied up for one year.  It made 10% in one year.  But for the shares purchased on 12/1/99, the $100 was only tied up for one month.  It made 10% in one month--which is a significantly higher return than 10% per year.  In fact, if an investment gained 10% every month, it would gain 207.5% in one year!

TVM formulas give the most accurate ROI possible.  The same formulas are used by corporations and big investors to evaluate capital expenditures and investment alternatives.  They use these formulas because they are absolutely accurate.  In the example above, where the primitive ROI was 10%, the TVM - ROI would be 18.65%.  Unfortunately, in a real-world example, you would normally be unable to calculate the true TVM - ROI because its calculation requires advanced numerical analysis--which can involve thousands or millions of calculations for even one stock.

But the DRIP Wizard does everything for you.  Advanced and primitive ROI calculations are done for your stocks and for your portfolio automatically, quickly, and on the fly.  There's no waiting, no calculating, no searching.  It is all right there in front of you.

And if that's not enough . . . the DRIP Wizard also calculates primitive and advanced ROI for each individual stock purchase (optional cash payment)!!!  Imagine.  You've been in a DRIP for a while and decide to make an optional payment of $1000 to directly purchase more shares.  As the quarters and years pass, that extra investment's value will increase every subsequent dividend payment.  And those reinvested dividends will be used to purchase more shares . . . which will ultimately increase your dividend and will be used to purchase more shares . . . and so on.  Now all those extra dividends and shares from the $1000 extra investment are worth something today--but you have no idea what they are worth.  The DRIP Wizard actually goes through and determines how much extra you have made from that individual purchase.  It shows you the value of that purchase today and the ROI for that individual purchase!  To do this by hand would be virtually impossible.  But with the power of your computer, the DRIP Wizard goes through thousands of calculations to give you these results within fractions of a second.