Replies to post #36042 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

RE: Units

First time you add money to the portfolio, you arbitrarily decide what your initial unit value is going to be - people generally choose a nice round figure such as £10.00 - and then you express the money added in units. So assuming you initially bought £3000 of stock, you'd record the portfolio as consisting of £3000/£10 = 300 units.

Each time that you add money to the portfolio, you look at the total value of the portfolio just before adding it, including both the value of the shares and any cash it contains. Divide that by the number of units in the portfolio to find out what the unit value is, then divide the cash being added by the unit value to find out how many units you're adding.

For example, suppose you add another £3000 after a while, and you find that the portfolio value at the time that you add it is £3750, then the unit value is £3750/300 = £12.50, and you're adding £3000/£12.50 = 240 units to the portfolio. So the portfolio now consists of 300 + 240 = 540 units.

Each time you remove money, you follow exactly the same procedure, except that you subtract the units from the portfolio. E.g. a bit after the above events, you decide to take £200 of dividend income out of the portfolio to live on rather than reinvesting it. If the portfolio at that time is worth £7000 then the unit value is £7000/540 = £12.96. So you're withdrawing £200/£12.96 = 15.43 units, and the portfolio now contains 540 - 15.43 = 524.57 units.

If you record what each unit is worth over time, then you can use those figures to see how each unit relatively increased (or decreased) over time. i.e. an indication of the investment rewards achieved over time.