Portfolio turnover

The proportion of a portfolio bought and sold within a year. Zero means nothing was sold; one means roughly the whole portfolio changed hands.

Example

A fund with 80% annual turnover replaces most of its holdings each year, paying transaction costs and, in a taxable account, potentially creating tax events.

Important

Turnover measures how often somebody believed they knew something. Each trade has to beat the tax, the spread, the commission and the chance of being wrong.

Related terms

• Taxable event — The moment a tax system treats something as having happened - most commonly a sale, rather than an increase in value while you still hold the asset.
• Transaction cost — What it costs to trade rather than to hold: commission, the spread between buying and selling prices, any tax on the trade itself, and the price movement a large order causes.
• Tax drag — The reduction in compounding caused by paying tax earlier than necessary - the tax itself plus everything that tax would have earned had it stayed invested.

Lessons that explain it

• Appraising one fund: the holdings file, the rules, and the gap to the index — Seven checks, in order of how much they change what you own. The two everybody runs - the name and the expense ratio - are the two cheapest, and the one nobody runs is where the exposure lives. (14 min)
• The cost you can read, the costs you cannot, and the tax bill you did not choose — Four layers of cost sit behind one printed number, and a fund's own trading can hand you a taxable event on a position showing no gain at all. (13 min)
• One scheduled review beats constant tinkering — A yearly review checks allocation, concentration, costs and whether holdings still match their purpose. Doing it on a schedule, in writing, prevents both neglect and reacting to every market move. (9 min)
• What it costs to own: drawdowns, fees, spreads and the tax on turnover — The risks and the costs of public equity are different in kind. One is mostly survivable; the other is certain, compounding, and largely within your control. (13 min)
• Turnover, the taxable event, and the cost of selling — In most systems a gain is taxed when it is realised, not when it happens. That single rule means how often you trade changes your return even when every trade is correct. (11 min)

All 578 terms in the Investing glossary