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What Is Investment Turnover?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 27 August 2016
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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.

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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.

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SarahSon
Post 4

How do you find out what the best investment funds are? I want to start doing some investing, but have no idea where to start. I can understand why looking at the turnover rates of some of the top investment funds is a good idea.

If you have money invested in a mutual fund, do you get charged every time they buy or sell something?

sunshined
Post 3

I have tried different investment strategies, and understand why people like short term trading with a lot of turnover, but it is also a lot of work. I also felt like my account was slowly dwindling away with the amount of money I was paying in commissions and fees.

I know this goes along with any kind of investment, but the more often you buy and sell investments, the more you pay out in fees. I would rather buy a solid stock that I feel is ready for growth and hold on to it for a long time.

There is not nearly as much excitement with this type of investing, but the turnover is low, and it is

a way I can invest and still sleep OK at night. If I was going to have a high turnover in my investment account, I would have to spend a whole lot more time at it than I do now.

I know some people who spend hours in front of the computer watching what the market is doing and following up with their investments. While it is a good idea to always know what is going on with your money, I don't want to spend that much time and energy buying and selling all the time.

andee
Post 2

My son is a day trader, so he is in and out of investments on a daily basis. There is a certain amount of risk that goes along with this, but this is the style of trading that he enjoys. Not very many people are successful at day trading, but he has been able to make a nice living at it.

He also invests in some longer term investments, but most of his trades he is in and out of within a day or two. I have no idea how much of a tax nightmare this would be. I know he has to keep very good records, and he automatically keeps track of this on his computer.

This is not the type of investing I would feel very comfortable doing. Most of my investments I have held for over 5 years, so I don't have much turnover in my account at all.

julies
Post 1

When I am researching different mutual funds investment opportunities, turnover is one of the statistics I always look at.

I don't like to invest in a fund that has a lot of turnover, so if this number is high, I generally look for something else. I think the more often you buy and sell investments, the more you pay in fees and it can really take a big bite out of your profits over time.

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