What is the realized return?
Realized return is the amount of actual profits that are made from the value of the portfolio during the specific evaluation period. This number takes into account all earnings generated by each of the assets contained in the portfolio, as well as all the losses that arose due to the shift of the value of individual assets. It is also possible to identify the realized return associated with any asset held in the portfolio.
There are several reasons why the investor would like to regularly confirm the real return generated for his investment. The first is to do with the stability of the portfolio itself. If the return rate for the portfolio is generally low or should reduce, it is a sign that some types of investment types would be a good idea. In the event that the portfolio is already diverse, the loss in return may indicate that one or more investment types are a higher percentage of the total value -accumulated assets than it should. In both scenarios, knowing that the realized return is not what should be, may make the investor make changes before further losses.
When calculating the realized portfolio return, which includes bond problems, it is important to focus on actual interest payments that are accepted on the bond coupon over the period. For example, if a bond problem with a ten -year period of duration offers 5% annual interest payment, the investor will include this amount only if the payment has already been received. In contrast, the investor will record any increase in the unit price of each shares in the portfolio, as this number reflects the change in the market value of these shares since the end of the considered period.
The use of the calculation of the realized return can go a long way to help the Vestor decides what the assets have a little longer, which of them immediately, and when obtaining additional shares or units of the investment would be a wise choice. By measuring the return of the returnOver time, it is possible to determine whether the objectives set for investment efforts are achieved and the potential impact of the purchase and sale of assets to achieve these goals. As a management tool, he may know that the realized return for the following periods can help the investor organize his assets for the best effect and build a portfolio to move further to the next level of profitability.