Properly Measuring Investment Profits
Measuring the profits one makes off of one’s investments can be a tricky business. The value of a dollar changes from year to year, often reducing the “value” of a profit, even if the number is rather high. A profit of $500 today doesn’t mean nearly what it meant in the 1950s.
Suppose we buy an investment for $1,000, including buying expense, and sell it for a net of $1,500, after deducting selling expense. Customarily we say we have a profit, before tax, of $500; and if we pay a 15 percent Federal capital-gain tax of $75, our profit after this tax is $425. Within certain limits, these statements may be correct, but they can be quite deceptive for a long-term investor.
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Last modified July 24, 2007Author 309 > has blogged 217 times
