TransWikia.com

What could be the basis for computing your Cost of Opportunity?

Personal Finance & Money Asked by mirageservo on February 24, 2021

For example, I bought 30 shares of X Company for $10/share in November 2016:

30 x $10 = $300 
+ 10% tax = $330

If I hold on to it until 2021 and the price of each share is around $11.50,

  1. Have I made a good investment or I have cost myself opportunity?
  2. And compared to a time deposit or regular savings?

2 Answers

Have I made a good investment or I have cost myself opportunity?

A five year increase (presuming you held it until November 2021) of 15% computes to a 2.83% CAGR (compound annual growth rate).

That's... low for a stock. Even with COVID, the S&P500 has yielded a 14.23% CAGR from Nov 2016 until now.

However, with that low growth, I'd ask what dividends the company was issuing. If, for example, they issued a $0.55 dividend every year, and you reinvested them into buying more shares, then your true yield would be about 7.8%!! That's quite acceptable, especially if the price is stable (didn't collapse last March).

Thus, based on your goals and risk tolerance, you might have made a poor investment, or you might have made a good investment.

(I wouldn't mind having such a stable stock with high dividend yield in my IRA...)

And compared to a time deposit or regular savings?

According to Bankrate.com, the average, five year CD in 2016 yielded about 0.8%. So, this investment is better than a time deposit.

Answered by RonJohn on February 24, 2021

Comparing an investment to a typical alternative investment is called hurdle rate analysis (or discount rate analysis). Choose a hurdle rate and then run the analysis to see how the investment compares to that hurdle rate.

Answered by Orange Coast- reinstate Monica on February 24, 2021

Add your own answers!

Ask a Question

Get help from others!

© 2024 TransWikia.com. All rights reserved. Sites we Love: PCI Database, UKBizDB, Menu Kuliner, Sharing RPP