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Ask The Fool

The internal rate of return

Q: If I've made multiple purchases of a stock over time, how can I figure out my annual return?

A: What you want is the "internal rate of return" (IRR). If you invest $1,000 and it grows to $2,000 in one year, your holdings advanced 100 percent. (Congrats!)

But if you invest $1,000 and then add $500 midyear, and then end the year with $2,000, your holdings didn't appreciate by 100 percent. Part of that gain is simply from the midyear cash infusion.

Calculating an internal rate of return can be very complicated. One shortcut is to plug your numbers into a spreadsheet on your computer and to use its IRR function to do the math for you. Another possibility is to enter your portfolio into an online portfolio tracker that calculates IRR.

To learn more, go to an online search engine and type in "internal rate of return."

The Motley Fool take

Bad moon rising on solar

It was a sunny day for solar power when Congress decided to bail out Wall Street. The final bill included gifts for many industries, including the renewal of investment tax credits (ITCs) for solar power for eight more years.

While the future for the solar industry seems bright, the tax credits may provide little immediate relief.

Hapoalim Securities analyst Gordon Johnson points out that 50 to 70 percent of solar projects are financed by debt, and the credit situation in the country hasn't improved to any extent, even with the massive bailout and capital injections the government has made.

Thus, there is expected to be little lending available to finance solar projects, at least over the short term.

The eight-year ITC extension is important for unlocking the value inherent in the solar industry, but investors would be wise to use caution when deciding whether to invest in solar companies right now.

There's a developing consensus that the U.S. can become a storehouse of demand for solar power, and the ITC is just one component furthering it.

Yet with the country's credit woes still uncertain, lending criteria tightening and supply issues that need to be worked out, what appear to be cheap valuations today may seem dear by next year. And that's a cloud that shouldn't pass over your portfolio.

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