How to calculate return for "negative" investment
I'm tracking a few investments, with a simple formula for total (non-annualised) return, which is (current_value - money_invested) / money_invested. For one of my investments, however, I already partially cashed out (for more than the total original investment), which makes the formula yield negative.
For the sake of argument, let's say the numbers are:
Invested 00
After it grew to 00, I sold 00 worth.
So I now have "spent" -0 to acquire an asset worth 00, yielding a return of (1500 - -500)/(-500) or -400%.
Is there a more meaningful calculation I can do in this case?
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Treat it as two investments of 0. One has been realised for 00 (200% return). The other is still worth whatever the remaining half of your investment is worth.
For uneven cash flows the appropriate calculation is the internal rate of return. Although it can be calculated by hand, if you don't want to learn the Newton-Raphson method, you should use Microsoft Excel's IRR function. There are many, many, many videos on Youtube to show you how to lay out the spreadsheet. The final value should be its current value or it will be undefined. It has to have a terminal value or it will generate garbage.
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