Annual turnover is the percentage of change within a year, used to describe changes in employee force, investment portfolios, mutual funds, and exchange-traded funds. Low employee turnover is preferable, while high investment turnover can be positive if it improves portfolio value and diversity.
Annual turnover is a term used to describe the degree of change that takes place within a calendar year. Usually presented as a percentage, a turnover can be calculated to describe change within a force of employees, then holdings within an investment portfolio, or changes with investments held by a mutual fund or some type of exchange-traded fund. bag. For each application, identifying the annual turnover rate and the reasons behind the changes that took place are invaluable when planning for the future.
When it comes to annual employee turnover, most companies look to keep the ratio as low as possible. When an employee is hired, the employer makes an investment in that employee, typically by training the employee to perform tasks that they may not have performed in the past. Since it costs money to train new employees, keeping current employees who are fully competent in their jobs is best for the company. For this reason, companies will often offer incentives to stay in business for the long term. As a bonus, keeping annual turnover low also increases the perception that the business is stable and likely to be around for many years.
In terms of investment activity, an annual turnover is the ratio or percentage of changes that take place within an investment portfolio over the course of a calendar year. With this application, a higher annual turnover is not necessarily a negative, if that turnover actually improves portfolio value and diversity. For example, if an investor began the year with a portfolio that was overwhelmingly made up of stock options associated with a single industry, the need to diversify would be apparent. Assuming that throughout the year the investor took steps to secure stocks related to other industries, bought some bond issues, and eventually decreased their market exposure in that industry, there is a good chance that the portfolio will generate a higher return. At the same time, the portfolio will be positioned to protect the investor from a sudden downturn within any industry.
Annual turnover is also used to describe the rate of change within a mutual fund or some type of exchange-traded fund within a given year. As with diversifying a portfolio, mutual fund managers will constantly evaluate new investment options for inclusion in the fund. This may involve selling investments that are not performing up to par, and are not expected to improve in performance for some time. When this is the case, a higher annual turnover is considered a positive event, as making those changes protect the best interest of investors in the fund and allow the rate of return to be as high as possible.
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