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Meaning / Definition of

Return

Categories: Tax, Investing and Trading, Bonds and Treasuries, Accounting, Stocks,

Your return is the profit or loss you have on your investments, including income and change in value. Return can be expressed as a percentage and is calculated by adding the income and the change in value and then dividing by the initial principal or investment amount. You can find the annualized return by dividing the percentage return by the number of years you have held the investment. For example, if you bought a stock that paid no dividends at $25 a share and sold it for $30 a share, your return would be $5. If you bought on January 3, and sold it the following January 4, that would be a 20% annual percentage return, or the $5 return divided by your $25 investment. But if you held the stock for five years before selling for $30 a share, your annualized return would be 4%, because the 20% gain is divided by five years rather than one year.Percentage return and annual percentage return allow you to compare the return provided by different investments or investments you have held for different periods of time.

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Definition / Meaning of

Inflation-protected Security (TIPS)

Categories: Finance,

us treasury inflation-protected securities (TIPS) adust the principal twice a year to reflect inflation or deflation measured by the consumer price index (CPI). The interest rate is fixed and is paid twice a year on the adjusted principal. So if your principal is larger because of inflation you earn more interest. If it's lower because of deflation, you earn less.You can buy TIPS with terms of 5, 10, or 20 year at issue using a TreasuryDirect account or in the secondary market. At maturity you receive either the adjusted principal or par value, whichever is greater. You owe federal income tax on the interest you earn and on inflation adjustments in each year they're added even though you don't receive the increases until the security matures. However, TIPS earnings are exempt from state and local income taxes.These securities provide a safeguard against deflation as well as against inflation since they guarantee that you'll get back no less than par, or face value, at maturity.

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