Investment turnover is a type of assessment that has to do with the purchase and sale of investments within a portfolio over a specified period of time. In many situations, this figure reflects the frequency of purchases and sales of asset over the course of a calendar year, although the calculation can involved a shorter period of time. The idea behind determining the investment turnover is to understand how frequently replacements of assets are occurring and what type of benefits are gained in comparison to the cost of trading and brokerage fees and the overall impact on the worth of the investment portfolio.
There are a couple of different ways to go about determining the investment turnover within a portfolio. One approach involves focusing attention on the total value of new securities that are purchased during the period under consideration, then dividing that amount by the value of the portfolio itself. An alternative approach calls for identifying any securities that are sold during the period and the sale prices involved with those assets. After totaling the total amount of the sales, that figure can also be divided by the net value of the portfolio to determine the investment turnover ratio. From there, the investor can consider the outcome of the calculation and use that data to make decisions about how to buy and sell securities in the future.
Understanding the value of the current investment strategies in terms of how decisions on purchases and sales are determined is a key benefit of assessing the investment turnover. By assessing the impact that the current approach to buying and selling securities is having, it’s possible to decide if the current approach is moving the investor closer to his or her goals. At the same time, the result may also indicate that the investor may want to try a different approach to acquiring, holding, and selling assets, if the figures aren’t to his or her liking.
There is really not an ideal turnover ratio that would be the right approach for every investor. A ratio that would be quite acceptable to a conservative investor may be considered a failure by someone who is willing to take on additional risks. The object of calculating the investment turnover is to see if the activity is in line with the mindset of the investor and if the buying and selling strategies employed could be improved upon and increase the benefits to that investor within the bounds of his or her own investment preferences.