Mastering Your Investment Returns: The Ultimate Guide to Holding Period Yield

Discover what Holding Period Return is, how to calculate it, and why it's essential for evaluating your investments across differing timeframes.

Holding period return is the total return received from holding an asset or a portfolio of assets over a period, known as the holding period. It is generally expressed as a percentage and is particularly useful for comparing returns on investments purchased at different periods.

Key Takeaways

  • Total return over a holding period: Holding period return (HPR) is the total return earned on an investment during the time it has been held.
  • Defines the holding period: The holding period is the time the investment is held by an investor, or the time between the purchase and sale of a security.
  • Comparison across timeframes: HPR helps in making comparisons between returns on investments bought at different periods.

Understanding Holding Period Return

Holding period return is calculated based on total returns from the asset or portfolio (income plus changes in value). It allows for comparisons between investments held for different periods.

Starting the day after a security’s acquisition and continuing until its sale, the holding period determines tax implications. For example, Sarah bought 100 shares of stock on Jan. 2, 2023. Her holding period begins counting on Jan. 3, 2023. The third day of each month thereafter counts as the start of a new month, irrespective of its length.

If Sarah sold her stock on Dec. 23, 2023, she would realize a short-term capital gain or capital loss as her holding period is less than one year. If she sold on Jan. 3, 2024, it would be a long-term capital gain or loss since her holding period exceeds one year.

Calculating Holding Period Return

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

\text{Holding Period Return} = \frac{\text{Income} + ( \text{End Of Period Value} − \text{Initial Value} )}{\text{Initial Value}}

Returns computed for regular periods like quarters or years can be converted to a holding period return as well.

Example of Holding Period Return/Yield

Here are some examples of calculating holding period return:

  1. Stock Purchase with Dividends:

    An investor bought stock a year ago at $50 and received $5 in dividends. The current stock price is $60.

    \text{HPR} = \frac{5 + (60 − 50)}{50} = 30\%
  2. Comparing Mutual Funds:

    Fund X, held for three years, appreciates from $100 to $150 and provides $5 in distributions. Fund B, held for four years, goes from $200 to $320 and generates $10 in distributions.

    \text{HPR for Fund X} = \frac{5 + (150 − 100)}{100} = 55\% 

ewline \text{HPR for Fund B} = \frac{10 + (320 − 200)}{200} = 65%

3. **Annualized HPR Calculation**:

\text{Annualized HPR for Fund X} = (0.55 + 1)^{1/3} − 1 = 15.73\% 

\text{Annualized HPR for Fund B} = (0.65 + 1)^{1/4} − 1 = 13.34\%

Despite having a higher HPR, Fund B’s annualized HPR, necessary for comparison, shows Fund X as the superior investment.

  1. Stock Portfolio Quarterly Returns:

    Your portfolio had returns: +8%, -5%, +6%, +4%. The benchmark index’s annual return was 12%.

    \text{HPR for Stock Portfolio} = [(1 + 0.08) \times (1 - 0.05) \times (1 + 0.06) \times (1 + 0.04)] − 1 = 13.1\%

    Your portfolio outperformed the index by 1.1%. Ensure the risk profile of both is compared to judge if the extra return was due to higher risk.

Is Holding Period Return the Same as Rate of Return?

Essentially, yes. The rate of return indicates how much an investment earned or lost in percentage terms, similar to HPR, which provides the return within the holding period.

Why Do We Need Holding Period Return?

HPR is vital as it considers both appreciation and income payments. It excels in comparing the performance of investments held over varying durations.

What Does Holding Period Mean?

The holding period refers to the time a security is held. It starts when an investment is purchased and ends when it’s sold.

Can Holding Period Return Be Negative?

Yes. Investments, even dividend-paying stocks, can have negative holding period returns if they depreciate in value.

The Bottom Line

A holding period return represents the total return from holding an asset or collection of assets over a specific time. Calculating HPR involves subtracting the purchase price from the sale price, adding any received income, and dividing by the initial value. Multiply by 100 to express it as a percentage.

Knowing your holding period return simplifies comparisons between investments, especially those held for different durations.

Related Terms: total return, portfolio, capital gain, capital loss.


  1. Internal Revenue Service. “Topic No. 409 Capital Gains and Losses”.

Get ready to put your knowledge to the test with this intriguing quiz!

--- primaryColor: 'rgb(121, 82, 179)' secondaryColor: '#DDDDDD' textColor: black shuffle_questions: true --- ## What is the definition of Holding Period Return (Yield)? - [ ] The amount of dividends received during an investment period - [ ] The annual return on an investment, regardless of its duration - [x] The total return earned on an investment over the entire period it is held - [ ] The price difference between the initial cost and selling price of an asset ## Which of the following best describes Holding Period Yield (HPY)? - [ ] The risk-free rate of return - [x] The return received from holding an asset over a specified period, including both income and capital gains - [ ] The inflation-adjusted return on an asset - [ ] The total expenses incurred during the holding period ## How is Holding Period Return typically expressed? - [x] As a percentage - [ ] As a ratio - [ ] As a dollar amount - [ ] As an index ## What is a common practice for computing Holding Period Return? - [ ] Calculating it yearly only - [ ] Ignoring reinvested dividends - [x] Including both income received and capital appreciation - [ ] Deducting trading fees only ## Which financial metric closely relates to Holding Period Return? - [x] Total return - [ ] Current yield - [ ] Price-to-earning (P/E) ratio - [ ] Gross margin ## What role does time duration play in calculating Holding Period Return? - [ ] It is irrelevant - [ ] Shorter time durations lead to higher HPY always - [x] The return is calculated for the entire period the asset is held - [ ] Minimal duration of six months is required to compute HPY ## Why is comparative analysis using Holding Period Return important? - [ ] It helps determine the safest investments - [ ] It only affects fixed income investments - [x] It allows investors to compare the performance of different investments over the same period - [ ] It excludes market volatility considerations ## Which components are essential when deriving the Holding Period Return? - [ ] Only capital gains - [ ] Only dividend income - [x] Both income received and capital appreciation - [ ] Only expenses incurred ## How does Holding Period Return account for closing prices of assets? - [x] By considering both the initial and the closing prices - [ ] Only using the initial purchase price of the investment - [ ] Ignoring closing prices and focusing on costs - [ ] Using closing prices periodically, rather than final ones ## How can investors use Holding Period Return to make investment decisions? - [ ] By ignoring past performance metrics - [x] By evaluating the total return received over different durations to assess potential future gains - [ ] By using it as a standalone measure without other analysis - [ ] By relying solely on projected future returns