# Break Even Point

# How Do You Break Even?

A break even point, is the value an investment needs to achieve in order to cover costs. At any value above this cost, the investment will be in profit, at any value below, it will be at a loss.

The break even cost will change if you earn income from your investment or if you are paying holding costs (such as margin loan interest).

Let's say you buy $1,000 worth of shares, and your broker charges $25 per trade. Your break even point would be $1,050. At this value, you have paid brokerage on the purchase and the sale, and you have recovered your initial investment. In this example, the value of your shares would need to rise 5% before you make any profit.

Now let's say that you hold the above shares for 12 months, and receive a dividend of $70. Your new break even price, is $980. The dividend has paid all your brokerage and given you an extra $20. This investment is now cash flow positive, and your shares can fall by 2% before you make a loss.

An aggressive investor may use a margin loan, and borrow $500 of the $1,000 to make the above investment. Assuming an interest rate of 7%, they would incur an interest cost of $35 over the year. For this investor their break even value is $1,015. They get a dividend of $70, but have to pay $50 in brokerage, and $35 in interest.

When tracking the performance of your investments, it is important to understand your break even points. Investors often assume that any sale above their purchase price is profitable, but as the above examples show, this is not always the case.