on Investment (ROI)
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.
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.