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How to Calculate Your Investment Returns

Posted By Jim On 04/08/2013 @ 7:15 am In Investing | 2 Comments

I was playing around in my Vanguard account over the weekend (I know, thrilling weekend fun!) when I saw that Vanguard makes it easy for you to see how your specific spread of investments have been doing on a 5, 3, and 1 year basis (there’s also a Custom period too). It’s under the My Accounts menu tab and is called Personal Performance.

After playing with it for a little bit, I wanted to combine my returns from TradeKing, where I did most of my individual stock investments, with my returns from Vanguard, where it’s mostly funds (and a few stocks). Percentage-wise the TradeKing account is small, just 13.3% of total invested assets, but I still wanted to see how it performed.

Vanguard

My investments are a pretty eclectic mix of Vanguard funds and investments of company common stock.

Here were my returns against the S&P:

  • 5 Years – 8.2% (vs. S&P500 3.29% vs DJIA 3.28%)
  • 3 Years – 9.2% (10.24% vs 10.21%)
  • 1 Year – 8.2% (11.86% vs 11.05%)

Incidentally, if you just go to the S&P500 [3] and DJIA [4] pages on Google Finance, click to Zoom on the graph to a specific period, that return in the upper right hand side is not an annual return figure. It’s a simple percentage increase over the time period. You only need to hit 5y and see double digit percentage figures to realize that number is wrong!

Pretty vanilla stuff. One reason our portfolio lags the S&P and Dow is because we have a portion of it in a money market as we await different opportunities. That is earning basically nothing. We also have about 75% domestic, 25% international. We are also about 85% equities and the rest in bonds or the aforementioned cash. All of those will lag domestic equities, especially over the last three years.

TradeKing

Sadly, TradeKing doesn’t make it as simple or as easy as Vanguard. They don’t have a performance return section like Vanguard does and in order to calculate my investment returns, I have to do it manually. The simplest way would be to use Excel’s XIRR function. I’m not sure how this compares to Vanguard’s methodology but given their explanation [5], it should be the same since they’re both dollar weighted IRR calculations.

To do this, you need Excel’s XIRR function. All you need to do is put one column of cash flows (negative for your contributions, positive for your withdrawals) and another for the corresponding dates. The last row should be a positive for the current balance and today’s date (using the DATE function). The XIRR function is simple – XIRR(values, dates, guess). Values is the first column of dollar amounts, dates are the dates of the cashflows, and guess (which is optional) is what you guess to be the rate of return (defaults to 10%). If you want a tutorial, this page [6] has a good one.

Only bit of bad news is that I can only get TradeKing history for the last two years. That means I can’t get 3 year and 5 Year returns that include my TradeKing account data. That really stinks when you consider I bought shares of Apple at $90 and rode them up to $600 before selling them last year, so I miss out on a big chunk of returns.

Integrating the Data

Unfortunately, integrating the data isn’t really possible unless I were to go back and get all the inflows and outflows from Vanguard. The reality is that this information isn’t entirely actionable for me and so I have little incentive to go back and research all the inflows and outflows. So for now, I’ll just be satisfied to know that my historical returns in my Vanguard account are “pretty good.” They’re certainly within my target, 7-10% annual returns, and great that it happened through some troubling financial times.

If you’ve done this yourself and been able to integrate the data (I was told that Quicken does this if you import all the data) in some quick and easy way, let me know. I found a few online tools, like SigFig, that you can link up your accounts and they have told me my 1 Year return is 10.7% vs. 11.2% of the S&P and 10.7% of the DJIA (and they used a time weighted return, not a dollar one so it’ll be higher).

(Photo Credit: kenteegardin [7])


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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/calculate-investment-returns.html

[3] S&P500: https://www.google.com/finance?q=INDEXSP%3A.INX

[4] DJIA: https://www.google.com/finance?q=INDEXDJX%3A.DJI

[5] explanation: https://personal.vanguard.com/us/content/MyPortfolio/performance/LMperfSummaryInfoContent.jsp

[6] this page: http://whitecoatinvestor.com/how-to-calculate-your-return-the-excel-xirr-function/

[7] kenteegardin: http://www.flickr.com/photos/26373139@N08/5537894072/

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