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How do you calculate an S&P 500 return?

A:

Quick Answer

The Standard & Poor's 500 is a stock market index, and its return is calculated in exactly the same way as the return for any stock or portfolio of stocks. This consists of subtracting the cost from the gain and dividing the result by the cost, states Investopedia.

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Full Answer

To calculate the return of an investment, note the initial amount invested, the value of the investment at the end of the period and any dividend income that was issued, states Investopedia. Subtract the value at the end of the period from the initial amount, add the dividend income and divide the result by the initial amount. Multiply the result by 100 to get a percentage. This percentage is the return over the chosen period.

When calculating the return of a stock or index as a way of evaluating the possibility of investing in it, keep in mind that past performance is not a reliable indicator of future performance, reminds Investopedia. An investment may perform outstandingly well for a given period of time and suddenly stagnate or fall in value; growth stocks, which rise significantly in value and then begin to show little or no growth, are one example. To fully evaluate an investment, consider aspects other than return, such as its volatility.

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