They say: at the beginning of the year you had a, you contributed b, your investment return is c and at the end of the year you have d.

And a + b + c = d, so that much is consistent.

And the "1 year rate of return" is x.

Well, x != 100*(c/b)

x will

*never* = 100*(c/b) unless a=0 and the single contribution date of b was exactly one year ago.

In my case 100*(c/b) = 2.7 while Vanguard shows me the 1 year return of 6.6%...

**What should that number tell me?**

What decision should I take based on that number?

In general, you shouldn't make any investment decision based on only one year's return.

I have no doubt they compute that number according to the formula MDM posted above, but I am still having trouble in understanding how to use that number :).

If we lived in a linear world, you could use that number to project your investment balance one year from now if you make no more contributions or withdrawals. As we don't live in a linear world (and

*you shouldn't make any investment decision based on only one year's return*) it's not a very useful number.

Let's say your statement was as follows (with some comments):

1 year activity summary

Beginning balance $0

Net transactions $27,900.25 (made yesterday)

Investment return $765.12 (in one day)

Ending balance $28,665.37 (today's balance)

Making $765.12 in one day would be an "annual" return of $765.12/$27,900.25

*** 365** = 1001%. Wow! what a big number. Totally useless (see "not a linear world" above), but hey, it's big!

The timing of your investments has to be considered in the calculations. Is it making more sense?