Author Topic: Question about calculating annual rate of return  (Read 3769 times)

brokeresident

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Question about calculating annual rate of return
« on: May 24, 2013, 10:52:22 AM »
I know there are many calculators out there for showing you how to calculate your annual or annualized rate of return on a set portfolio over a period of time. However, if you are continuously making contributions to that portfolio, is there a way to factor that into the equation? The only way I could think of is if you just disregard a particular contribution until it's been in the portfolio for over a year, and then average out the rate of return on your assets based on how long you've been holding them.

The_Dude

  • Stubble
  • **
  • Posts: 194
Re: Question about calculating annual rate of return
« Reply #1 on: May 24, 2013, 11:15:26 AM »
Excel is your friend.  if you want to calculate your annualized rate of return use the XIRR function.  You just need the date and amount of all contributions (and distributions if applicable) as well as current FMV.  Very quick and easy to calculate.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28057
  • Age: -999
  • Location: Seattle, WA
Re: Question about calculating annual rate of return
« Reply #2 on: May 24, 2013, 12:22:42 PM »
Excel is your friend.  if you want to calculate your annualized rate of return use the XIRR function.  You just need the date and amount of all contributions (and distributions if applicable) as well as current FMV.  Very quick and easy to calculate.

+1.  Google for XIRR example spreadsheets, then just download and fill in your own numbers.

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

aclarridge

  • Guest
Re: Question about calculating annual rate of return
« Reply #3 on: May 24, 2013, 12:44:43 PM »
I looked into this question a while ago and found the modified Dietz rate of return:

http://en.wikipedia.org/wiki/Modified_Dietz_method

I decided to implement it in Excel - see attached if you are interested. I'm not sure how different the results would be from XIRR.

It's not extremely well laid-out, but first put the stocks you are trading in the Market Values tab in the ticker list (if you use Yahoo tickers then you can click the button to update market values), then fill in the Trades, Distributions (dividends and commissions), and Cash Movements (adding money to your portfolio) tabs.

I changed the numbers to maintain my "investing privacy" so that's why the return is so whacked-out, but if you put in real numbers you should get something reasonable.

RadicalPersonalFinance

  • Stubble
  • **
  • Posts: 166
    • Radical Personal Finance
Re: Question about calculating annual rate of return
« Reply #4 on: May 24, 2013, 12:48:56 PM »
The way you calculate it depends on what you're trying to accomplish.  If you're just trying to track your own personal performance for the purposes of planning, do a dollar weighted return calculation.  For this, you'll use your cash flow numbers.  If you're trying to calculate your performance against other managers, you have to use a time weighted return, which functions based on percentages.  Both are valid, but the answers will be different.

abyss

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: Question about calculating annual rate of return
« Reply #5 on: May 25, 2013, 02:51:41 AM »
+1.  Google for XIRR example spreadsheets, then just download and fill in your own numbers.

if you don't own excel, Google Docs spreadsheets also support XIRR.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28057
  • Age: -999
  • Location: Seattle, WA
Re: Question about calculating annual rate of return
« Reply #6 on: May 25, 2013, 07:49:57 AM »
+1.  Google for XIRR example spreadsheets, then just download and fill in your own numbers.

if you don't own excel, Google Docs spreadsheets also support XIRR.

If you don't own excel, you should download LibreOffice.

www.libreoffice.org

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Keylime FI

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: Question about calculating annual rate of return
« Reply #7 on: May 30, 2013, 01:32:01 PM »
I've been keeping excel spreadsheets using XIRR for years on my own accounts. Keeps track of returns given deposits and withdrawals. Only way I know how to do it.