vanguard personal rate of return

[kenmoremmm]

can someone smarter than me explain in simpler terms what vanguard computes in its "personal rate of return" metric?
https://personal.vanguard.com/us/content/MyPortfolio/performance/LMperfSummaryInfoContent.jsp

for example, if my PRR is 10%, and i had placed $10k into my account 5 years ago and had no further contributions, does that mean my balance should be 10k * (1+.10)^5?

[norajean]

What's your personal rate of return?
Your personal rate of return is a figure, expressed as a percentage, that reflects your personal investment performance based on the investment choices you've made: how much money you've invested (not including reinvested dividends and capital gains), how long you've held your money in the investment, and how the investment has performed.

Vanguard uses an internal (or dollar-weighted) rate of return formula to calculate this figure.

What's it based on?
Your personal rate of return is generally updated on the third business day of each month and is based on data from the previous month.

Your personal rate of return includes Vanguard mutual fund and Vanguard Brokerage Services® accounts, annuities, 529 plans, and assets from employer-sponsored plans. Assets in trust accounts and defined benefit plans, as well as any outside investments you have, aren't included in your personal rate of return.

Performance figures for converted Admiral™ Shares include the past performance of the original Investor Shares. The rate of return for any given time frame will include investments you held during that time, even if you no longer hold the investment.

Keep in mind that past performance doesn't guarantee future returns. Current performance may differ from the performance data shown.
If you don't see a figure
A personal rate of return isn't calculated for:

New investors.
Money market funds.
Funds or accounts that had a zero balance at the beginning or end of the selected time frame.
Participants in the Ascensus plan. (Ascensus participants can log on at https://my.vanguardplan.com/vanguard/)

[kenmoremmm]

What's your personal rate of return?
Your personal rate of return is a figure, expressed as a percentage, that reflects your personal investment performance based on the investment choices you've made: how much money you've invested (not including reinvested dividends and capital gains), how long you've held your money in the investment, and how the investment has performed.

Vanguard uses an internal (or dollar-weighted) rate of return formula to calculate this figure.

What's it based on?
Your personal rate of return is generally updated on the third business day of each month and is based on data from the previous month.

Your personal rate of return includes Vanguard mutual fund and Vanguard Brokerage Services® accounts, annuities, 529 plans, and assets from employer-sponsored plans. Assets in trust accounts and defined benefit plans, as well as any outside investments you have, aren't included in your personal rate of return.

Performance figures for converted Admiral™ Shares include the past performance of the original Investor Shares. The rate of return for any given time frame will include investments you held during that time, even if you no longer hold the investment.

Keep in mind that past performance doesn't guarantee future returns. Current performance may differ from the performance data shown.
If you don't see a figure
A personal rate of return isn't calculated for:

New investors.
Money market funds.
Funds or accounts that had a zero balance at the beginning or end of the selected time frame.
Participants in the Ascensus plan. (Ascensus participants can log on at https://my.vanguardplan.com/vanguard/)

yes, i know. it was in the link i provided. just looking for a simple mathematical comparison based on my example given.

[robartsd]

for example, if my PRR is 10%, and i had placed $10k into my account 5 years ago and had no further contributions, does that mean my balance should be 10k * (1+.10)^5?

I believe this is the right idea. Not sure if/how the date of the month the investment was made factors in, but if you select a 5 year range and made no contributions or withdraws in that time frame, starting balance * (1 + PRR)^5 should come to the prior end of month balance of your account (within rounding errors).

Why do you want to know. Are you wanting to make projections based on PRR?

[kenmoremmm]

mostly just curiosity. they give you a summary of performance and it's good to know what it means. i plan to take no action as a result of the PRR.

[MustacheAndaHalf]

If you really only contributed once, it won't be interesting either way.  But if you've made contributions over time, try changing the display to 1 year, 3 years, 5 years.  That should show how your returns varied based on contributions and market return of your investments (you can also display funds added vs gains, I think).

[robartsd]

If you really only contributed once, it won't be interesting either way.  But if you've made contributions over time, try changing the display to 1 year, 3 years, 5 years.  That should show how your returns varied based on contributions and market return of your investments (you can also display funds added vs gains, I think).

The chart can show portfolio balance with either investment returns or purchases and withdraws.

[Wintergreen78]

My understanding is that most places quote the compound annual growth rate. Here’s the formula and more discussion.

https://en.wikipedia.org/wiki/Compound_annual_growth_rate

[MoneyGoatee]

You can get the result with simple math but not quite the same as Vanguard's result: in the table view of your personal performance, you take your total return (market gain/loss + income returns) of each month and divide the sum by the beginning balance for that month, and you get the % return for that month.  The sum of the % returns of all the months divided by N years will be the average % return during those N years.  As I said, you get close to Vanguard's number but not exactly.

[Wintergreen78]

You can get the result with simple math but not quite the same as Vanguard's result: in the table view of your personal performance, you take your total return (market gain/loss + income returns) of each month and divide the sum by the beginning balance for that month, and you get the % return for that month.  The sum of the % returns of all the months divided by N years will be the average % return during those N years.  As I said, you get close to Vanguard's number but not exactly.

What you are describing is an arithmetic average. Generally people recommend using the geometric average when calculating stock returns. The CAGR is a geometric average formula.