# Understanding Holding Period Return: Calculate Your Investment Gains

![Holding Period Return/Yield: The total return earned on an investment during the time that it has been held.](https://www.investopedia.com/thmb/F-XzR-TzeQa-sK1cjsHYYP2DDI8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/holdingperiodreturn-yield.asp-final-ebe66881aca444218afc6f42a051bbdd.png)

*— Investopedia / Julie Bang*

## What Is the Holding Period Return/Yield?

Holding period return measures the total return on an investment, expressed as a percentage, by comparing the gains and income earned during the period the asset was held. It's an essential metric for investors as it includes capital appreciation, dividends, and interest, enabling comparison across different investment timelines. Here’s how you can calculate and use it effectively for your financial strategy.

### Key Takeaways

*   Holding period return (HPR) is the total return earned on an investment over the time it was held.
*   HPR helps compare investment returns by including both appreciation and income over different timeframes.
*   Calculating HPR involves dividing the sum of income and any change in value by the initial investment cost.
*   HPR can be negative if the investment loses value, even if it generates income.
*   Annualized HPR allows comparison of investments held over different periods by converting HPR to a yearly rate.

## How to Calculate and Understand Holding Period Return

[Holding period](https://www.investopedia.com/terms/h/holdingperiod.asp) return is based on [total return](https://www.investopedia.com/terms/t/totalreturn.asp), including income and value changes of the asset or portfolio. It is particularly useful for comparing returns between investments [held for different periods of time](https://www.investopedia.com/ask/answers/043015/what-difference-between-yield-maturity-and-holding-period-return-yield.asp).

The holding period begins the day after buying a security and lasts until it is sold, affecting tax implications. For instance, if Sarah buys 100 shares on Jan. 2, 2023, she starts counting her holding period on Jan. 3, and every third day of each month afterward marks the start of a new month, no matter how many days that month has.

Selling her stock on Dec. 23, 2023, would mean Sarah has a short-term capital gain or [capital loss](https://www.investopedia.com/terms/c/capitalloss.asp). If she waits until Jan. 3, 2024, it would be a long-term gain or loss, as her holding period exceeds one year.

## Step-by-Step Guide to Calculating Holding Period Return

Holding Period Return (HPR) and annualized HPR for returns over multiple years can be calculated as follows:

$\begin{aligned}&\textit{Holding Period Return}\\&\qquad=\frac{\textit{Income }+(\textit{End Of Period Value }-\textit{ Initial Value})}{\textit{Initial Value}} \end{aligned}$

Returns for regular intervals, like quarters or years, can also be converted into a holding period return.  

1\. Identify the initial value of the investment.  
2\. Determine the end-of-period value.  
3\. Add any income received during the holding period to the difference between the end-of-period value and the initial value.  
4\. Divide the result by the initial value to get the holding period return.  
5\. Multiply by 100 to express it as a percentage.

## Examples of Holding Period Return Calculations

The following are some examples of calculating holding period return:

1\. What is the HPR for an [investor](https://www.investopedia.com/terms/i/investor.asp) who bought a stock a year ago at $50 and received $5 in [dividends](https://www.investopedia.com/terms/d/dividend.asp) over the year if the stock is now trading at $60?

$\begin{aligned}HPR=\frac{5+(60-50)}{50}=30\%\end{aligned}$

2\. Which investment performed better: [Mutual Fund](https://www.investopedia.com/terms/m/mutualfund.asp) X, which was held for three years and appreciated from $100 to $150, providing $5 in distributions, or Mutual Fund B, which went from $200 to $320 and generated $10 in [distributions](https://www.investopedia.com/terms/d/distribution.asp) over four years?

$\begin{aligned}&\textit{HPR for Fund X}=\frac{5+(150-100)}{100}=55\%\\[+.010pt]&\textit{HPR for Fund B}=\frac{10+(320-200)}{200}=65\%\end{aligned}$

Note: Although Fund B had a higher HPR, it was held for four years compared to Fund X's three years. Therefore, calculating the annualized HPR is necessary.

3\. Calculation of annualized HPR:

$\begin{aligned}&\textit{Annualized HPR for Fund X}\\&\qquad=(0.55+1)^{1/3}-1=15.73\%\\&\textit{Annualized HPR for Fund B}\\&\qquad=(0.65+1)^{1/4}-1=13.34\%\end{aligned}$

Thus, despite having the lower HPR, Fund X was the superior investment.

4\. Your stock portfolio had the following returns in the four quarters of a given year: +8%, -5%, +6%, +4%. How did it compare against the [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) index, which had total returns of 12% over the year?

$\begin{aligned}&\textit{HPR for your stock portfolio}\\&\qquad=[(1+0.08)\times(1-0.05)\times(1+0.06)\times(1+0.04)]\\&\qquad\quad-1=13.1\%\end{aligned}$

Your portfolio outperformed the index by over a percentage point. However, compare its risk to the index's to see if this extra return involved higher risk.

## Is Holding Period Return the Same As Rate of Return?

Pretty much, yes. The rate of return tells us, in percentage terms, how much an investment made or lost. The holding period return does the same thing, telling us the return on an investment during the timeframe it was held.

## Why Do We Need Holding Period Return?

Holding period return is important for several reasons. It considers not only appreciation but also income payments and is a great way to compare the performance of investments held over different timeframes.

## What Does Holding Period Mean?

Holding period means the time a security was held for. It begins when the investment is purchased and ends when it is sold.

## Can Holding Period Return Be Negative?

Yes. Not all investments generate a profit. Even a stock that pays a dividend could deliver a negative holding period return if it depreciated in value.

## The Bottom Line

The holding period return (HPR) calculates the total return from holding an asset or portfolio over a specific timeframe. To determine the HPR, subtract the initial purchase price from the selling price, add any income received, and divide the total by the initial price. Expressed as a percentage, this measure allows you to effectively compare the performance of various investments, even if they span different holding periods. This comparison can reveal insights into the investment's success during its held duration.

> **Article Sources**
>
> 1.  Internal Revenue Service. "[Topic No. 409 Capital Gains and Losses](https://www.irs.gov/taxtopics/tc409)."