Some of you may be wondering how well your specific portfolio performed last year. Let’s say you started the year with $10,000 and put in another $5,000 throughout the year, and ended up with $16,000. What was your rate of return? Your main goal is simply to separate the effect of new deposits (or withdrawals) and your actual return from investments.
Figuring out your exact personal rate of return requires you to know the exact dates of all your deposits and withdrawals, along with a financial calculator or software program with an IRR function. However, for an simple and quick estimate of your returns, try this calculator instead:
- Get your initial balance. This is probably from your brokerage statements. Try January of last year.
- Tally up any deposits or withdrawals. For example, maybe you put $3,000 in your Roth IRA and also put in 5% of your $40,000 salary into a 401(k). That would be $3,000 + $2,000 = $5,000. If you paid a lot in fees or commissions, include those. No need to worry about the dates.
- Get your final balance. Your December statement is probably available already.
- Find the time elapsed (in years) between your initial and final balances.
- Hit Calculate. An estimate of your annualized return is instantly given.
How Good Is This Estimate?
The calculator assumes that the inflows and outflows are spread evenly around the middle of the year. I originally saw this method in The Four Pillars of Investing (review). However, unless the deposits and withdrawals are very large as compared to the initial balance, the estimates are actually pretty good.
For example, let’s say that you start with $100,000 on 1/1/11, and end up with $120,000 on 1/1/11. If you had net deposits of $10,000 during the year, the calculator above would estimate your return at 9.52%. If the $10,000 was actually deposited all at once on one of these specific days, you would get the following exact returns:
|Deposit Date||Exact Return|
|1/1/11 (very first day)||9.1%|
|6/04/11 (middle of the year)||9.5%|
|1/1/12 (very last day)||10%|
I Want Exact Numbers Too!
For everything you ever wanted to know about rate of return and then some, see Gummy Stuff. I must warn you that it’s very math intensive. If you just want to know how to figure out the numbers, see his XIRR page. You’ll need the exact dates of all your fees, commissions, deposits, and withdrawals.
Like this tool? Check out the rest of my Tools and Calculators. I hope they are useful.
Updated and revised for 2012.