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How to work out return on your investment
Narendra Dhariwal
Posted: 15 April 2018 19:25:20(UTC)
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I,like a lot of people, invest monthly into SIPP and ISA.I have my portfolio on Investor Chronicle site and enter the deals done when practical.It tells you the rate of return over certain periods of time i.e. I month ,3 months,1 year etc.All holdings are IT,funds,ETF.No individual shares.
How reliable /accurate are these?Is this the correct way of calculating returns?Is there a more accurate way?How do others work it out?
King Lodos
Posted: 15 April 2018 19:49:25(UTC)
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I've ranted recently about why there is no useful way to calculate your own returns that *actually* takes into account the things you do that impact them..

Fund platforms use 'time-weighted' returns, which are good for assessing investments .. Institutional investors often use 'dollar-weighted' returns, which are good for assessing your own decisions (e.g. when and where you invested).

You want something that factors in:
– What you invest in;
– When and where you invest;
– How much you're paying in fees;
– Whether you could do better with a different approach;
– Whether you're taking enough risk, or not enough;
– Whether you're living within your means;
– Whether you're saving enough ..

And the only adequate solution I find is to calculate the sum total of your assets and investments (including cash, and any properties, businesses or real assets you own), and see how much it goes up and down each year.

So you might have cash and assets spread out across all sorts of fund platforms and banks, but actually realise you're only increasing your net worth by 2% a year .. It might inspire you to save more; it might mean all that active fund juggling you're doing isn't pulling its weight vs an index fund; it might mean you could put the whole lot in an NS&I bond, and get a second job delivering milk
5 users thanked King Lodos for this post.
Kevin Crane on 15/04/2018(UTC), Peter59 on 15/04/2018(UTC), Narendra Dhariwal on 15/04/2018(UTC), Mike L on 16/04/2018(UTC), mcminvest on 17/04/2018(UTC)
Kevin Crane
Posted: 15 April 2018 20:01:45(UTC)
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King Lodos;60661 wrote:


And the only adequate solution I find is to calculate the sum total of your assets and investments (including cash, and any properties, businesses or real assets you own), and see how much it goes up and down each year.



I do the same, with a column for what they are/should provide in income. I also include depreciating assets, with a guess at what they are 'costing' me (weighed against the pleasure I get from the asset, it isn't all about the science, there is some emotion involved :-)

3 users thanked Kevin Crane for this post.
King Lodos on 15/04/2018(UTC), Narendra Dhariwal on 15/04/2018(UTC), gillyann on 16/04/2018(UTC)
markus
Posted: 15 April 2018 20:24:50(UTC)
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I unitise as per Monevator article.
http://monevator.com/how...unitize-your-portfolio/


If I add everything up and it comes to £10k - then I've 100 x £100 units.

If I save £1k the next month then that buys me another 10 units at £100.

If at the end of adding £1k the pot is worth £11550 then my new unit price is £105 for 110 units...so my return that month is ~5%

So next month my £1k saving only "buys" 9.5 units.

If I withdraw £1k & the unit price is £100 then I reduce the unit count by10 units.

It's not perfect but at least gives some indication of combined portfolio performance.
4 users thanked markus for this post.
Sara G on 15/04/2018(UTC), Narendra Dhariwal on 15/04/2018(UTC), gillyann on 16/04/2018(UTC), mcminvest on 17/04/2018(UTC)
Sara G
Posted: 15 April 2018 20:42:22(UTC)
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I calculate discrete, cumulative and rolling returns on a monthly, quarterly and annual basis using a basic spreadsheet, which I also use to track individual holdings and asset allocation. I deduct any new money added (including tax relief on SIPPs) and only include the value of my investment pf, not my house, emergency cash or work pension.

I don't pay much attention to total net worth, since the value of my house is not something I can take credit for, and I need it to live in so would not be wanting to liquidate it - likewise possessions.
3 users thanked Sara G for this post.
Narendra Dhariwal on 15/04/2018(UTC), gillyann on 16/04/2018(UTC), Guest on 17/04/2018(UTC)
King Lodos
Posted: 15 April 2018 20:50:34(UTC)
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Yeah, it can make sense to exclude illiquid assets, like the house you live in.

But if you had rental properties, and some of that income went into stocks, etc.. it could help build a more holistic picture of how well investments are working together (imagine a situation where an asset generated more income when stocks were higher, and how that might skew your organic market timing) .. Or where an industry you work in is highly correlated to something you invest in, and whether that's a good or bad thing.

The big picture I'd always want to see is whether your net worth is *actually* growing at a reasonable rate – because, whether you calculate it or not, it's ALL subject to inflation
Narendra Dhariwal
Posted: 15 April 2018 21:12:25(UTC)
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I feel I am not clever enough to unitise every month.I started, did it for few months then gave it up as found it hard work!
Buying IT every month at different prices with dividends coming at different months makes it all too complicated!
If I work out total returns(which Investor Chronicle does) it does not tell me what sectors are doing well and which funds are a flop.
Every January I total up,substract it from last years total then subtract the amount added that year.That is my profit/loss for that year.Then work out the percentage.Very crude way.
One thing for sure, has never been anywhere near 17%!!!
Anywhere near 7% and I am smiling.
2017 was a bumper year.
4 users thanked Narendra Dhariwal for this post.
gillyann on 16/04/2018(UTC), Chris Howland on 16/04/2018(UTC), john brace on 16/04/2018(UTC), Guest on 17/04/2018(UTC)
markus
Posted: 15 April 2018 21:26:50(UTC)
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Narendra Dhariwal;60669 wrote:
I feel I am not clever enough to unitise every month.I started, did it for few months then gave it up as found it hard work!
Buying IT every month at different prices with dividends coming at different months makes it all too complicated!
If I work out total returns(which Investor Chronicle does) it does not tell me what sectors are doing well and which funds are a flop.
Every January I total up,substract it from last years total then subtract the amount added that year.That is my profit/loss for that year.Then work out the percentage.Very crude way.
One thing for sure, has never been anywhere near 17%!!!
Anywhere near 7% and I am smiling.
2017 was a bumper year.


Once you've set up the spreadsheet it should do most of the hard work for you..

I don't count dividends as new savings.

I just record the stock/cash values on a per account basis and the regular & adhoc savings inputs. The provider of the account shows the ongoing performance of the stock row on their web portfolio page.

So once I've updates a months stock/cash value per account the units purchased, unit price & returns (monthly, qtrly, annually) are auto calculated.

Sounds like you get a fair amount of this information from IC portfolios...but online content has an annoying habit of refreshing & loosing historic info...making the initial effort expended in getting the spreadsheet worthwhile in the long run.
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gillyann on 16/04/2018(UTC)
Kevin Crane
Posted: 15 April 2018 21:39:47(UTC)
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Sara G;60664 wrote:

I don't pay much attention to total net worth, since the value of my house is not something I can take credit for, and I need it to live in so would not be wanting to liquidate it - likewise possessions.


Fair point... and it illustrates the issue that comes up on these forums of needing to know a surprising amount about someone circumstances and attitudes before you can draw conclusions. In your circumstances you decided there is little point including the house as an asset. Understood.

I do include mine and I hope you won't think I am wrong to do that, just different.

I have been retired a number of years and have an attachment (I don't claim it is logical) to at maintaining my net worth while still living the high life :-)

I intend to downsize at some point, so I am not attached to this particular property. If it goes up in value I treat that as a win and all else being equal can spend more that year and still maintain the same net worth. I have another heavily depreciating asset that cuts the other way, its loss of value reduces my potential outgoings.





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Sara G on 16/04/2018(UTC)
King Lodos
Posted: 15 April 2018 21:43:21(UTC)
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Narendra Dhariwal;60669 wrote:
I feel I am not clever enough to unitise every month.I started, did it for few months then gave it up as found it hard work!
Buying IT every month at different prices with dividends coming at different months makes it all too complicated!
If I work out total returns(which Investor Chronicle does) it does not tell me what sectors are doing well and which funds are a flop.
Every January I total up,substract it from last years total then subtract the amount added that year.That is my profit/loss for that year.Then work out the percentage.Very crude way.
One thing for sure, has never been anywhere near 17%!!!
Anywhere near 7% and I am smiling.
2017 was a bumper year.


Well it sounds perfectly reasonable .. The fact it's not coming out at 17% a year would give me confidence that you're doing a good job with the maths.

The real question: what would you do this knowledge of which sectors and funds are doing better? .. Would you add to the winners and cut the losers, or top up the losers and cut the winners? .. Either could be the right decision.

There's quite a good argument for ignoring how well you're doing .. Back in the days when investors could only trade by phone, and couldn't check their returns easily, they tended to do much better .. Passive (Boglehead) investors are taught only to check once a year, and then just to do a systematic rebalance .. The reason I'm so big on 'net worth' calculations is because you can gain insight into things you've got more control over – easier propositions than 'beating the market' or finding the next Amazon .. Things like saving, spending, taking an appropriate amount of risk
2 users thanked King Lodos for this post.
Kevin Crane on 15/04/2018(UTC), Guest on 17/04/2018(UTC)
Alan Selwood
Posted: 15 April 2018 23:00:01(UTC)
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Although it sounds fine in theory to calculate to a high degree of accuracy what you are worth and how well you did last year, I doubt whether this will have much effect on how you do next year.

I used to measure my portfolio value a lot more frequently than I do now, and for me the key is to see what is dropping unexpectedly or suddenly, and try to determine why, and how significant the change in value is. So if a company that has been making 30%+ each year suddenly has a down year, I want to know whether it's a blip or a trend change. I may not judge correctly, but at least I am aware and can take it into account.

The unit trust firm I used to work for (in the days of Extel cards!) tended to ignore any daily change of under 2.5%, but pay attention to larger changes, in cases it was telling them something about the company they needed to follow up in more detail.

Air Partner's big drop in reaction to company news suggested to me that there were problems to steer round; I shall be interested to see what happens in the next year with Sage Group after their latest announcement about lowered performance (their worst performance for some time).
6 users thanked Alan Selwood for this post.
King Lodos on 15/04/2018(UTC), gillyann on 16/04/2018(UTC), Kevin Crane on 16/04/2018(UTC), Sara G on 16/04/2018(UTC), Mike L on 16/04/2018(UTC), dlp6666 on 16/04/2018(UTC)
King Lodos
Posted: 15 April 2018 23:48:43(UTC)
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I think the problem is conventional measures can be out by orders of magnitude.

Joel Greenblatt, in The Little Book That Beats the Market, gives the example of a fund that was making something like 20% returns annually ... but, because investors consistently got in and out at the wrong times, its actual return to the market was negative.

So as a fund manager, you can be making good calls, but because of the timing of your investors, you're actually losing them money .. And if retail investors are doing this, *they* really need a way of measuring returns that makes them much more conscious of it.


As you say, knowing your returns won't necessarily help .. UNLESS it makes you realise: I'm doing worse than I thought; I might as well put it all in an index tracker and stop looking. (which the vast majority would find was the case)

As a trader, it's almost not worth knowing what your returns are .. It can be useless information .. Really you only need to know what's predictive and actionable – and returns can take care of themselves.
Keith Cobby
Posted: 16 April 2018 07:20:12(UTC)
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I take the period end figure and subtract the last period end (I use tax year rather than calendar) and then deduct any new money invested, and then simply calculate the percentage which will include dividends etc.
4 users thanked Keith Cobby for this post.
Harry Trout on 16/04/2018(UTC), Mike L on 16/04/2018(UTC), dlp6666 on 16/04/2018(UTC), Guest on 17/04/2018(UTC)
Harry Trout
Posted: 16 April 2018 07:45:50(UTC)
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I use a time-weighted method to measure return for each individual investment and the overall portfolio. These workings are kept in Excel spreadsheets.

Essentially what I do (using goal seek in Excel) is calculate what rate of return when applied to the cash sums I invested would roll that cash up to the value the investment is showing today.

There are simple checks that you can do to start to get comfortable that your mathematics is robust.

For example, my investment in Old Mutual UK Mid Cap is showing a return over 10+ years as 17.8% per annum per my spreadsheet. I’ve held this investment in class A accumulation units for a little over 10 years and the average price I paid in the first year was roughly 105p. The price today is 504p. So a quick sense check confirms that my 17.8% is ok. I know there will be a difference because I have made many purchases of this fund over the years (using regular savings function in Hargreaves Lansdown) but my spreadsheet can cope with these multiple entries.

Over the long term I do find this is a good way for me to measure return although it can produce anomalies in the short term. For example, if you make an investment of £10,000 and it increases by 10% in a month then the time weighted method will be show a return over 100% per annum. Therefore some investors choose a money weighted return instead to cope with this. It’s a matter of preference really but as I place investments for the long term I’m happy with the time weighted approach.

The time weighted method I use can cope with disposals and for the reinvestment of dividends, if you want to know more I would happily expand.

Best of luck with your investing.

Harry
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Kevin Crane on 16/04/2018(UTC)
PaulSh
Posted: 16 April 2018 08:29:29(UTC)
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I use a spreadsheet that I've been developing over the past few years (being a retired programmer helps with this!). It's a bit of a monster now, but it displays/calculates, among other things, for both my own and my wife's portfolios:

  • Holdings, which it can import from HL's .csv export facility, with a sparkline (mini graph) for each stock and each asset class showing recent movements and trend)
  • A recommended stop loss level for each stock based on its recent movements and its volatility (which I only set in exceptional circumstances)
  • Future planned transactions with projected changes to the portfolio yield
  • Dividends, which are imported semi-automatically from dividenddata.co.uk
  • Dividend trends for each stock on a 12 month moving average
  • Total return for each stock and each asset class on an annual basis
  • Natural yield for the portfolios
  • Recommended monthly drawdown amounts, based on the natural yield but adjusted to make best use of our tax allowances
  • Cash in the portfolios tracked on a daily basis and checked against the monthly drawdown amounts

It also imports our bank account data and tracks our spending vs. our income. It only takes a few minutes each day to keep it up-to-date.
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Mike L on 16/04/2018(UTC)
I M
Posted: 16 April 2018 08:38:51(UTC)
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I don't really look at overall gains, I check the annual rate of return of each specific holding - if they are hitting target then I should be fine overall. A Holdings Summary sheet has a list of all my holdings and a web lookup for the latest prices. Every few months I download the transactions from my platforms (HL, II, iWeb) and paste them in to a running table containing all transactions. A formula after the transactions gives the rate of return for every transaction using the buy date and the value today. The Holdings sheet picks up all of these and the dividends paid from the transactions so that I can see the total rate of return. I plot these for everything I currently own to see at a glance the return on every transaction. I have an idea what return I am expecting from each (perhaps 20%+ from SMT, LT Global, but down to only a bit above inflation for RICA or a real return fund). Once I see something dropping below target I will do an investigation to see if it time to sell.
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Kevin Crane on 16/04/2018(UTC)
Kevin Crane
Posted: 16 April 2018 08:59:29(UTC)
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I M;60692 wrote:
I don't really look at overall gains, I check the annual rate of return of each specific holding - if they are hitting target then I should be fine overall. A Holdings Summary sheet has a list of all my holdings and a web lookup for the latest prices. Every few months I download the transactions from my platforms (HL, II, iWeb) and paste them in to a running table containing all transactions. A formula after the transactions gives the rate of return for every transaction using the buy date and the value today. The Holdings sheet picks up all of these and the dividends paid from the transactions so that I can see the total rate of return. I plot these for everything I currently own to see at a glance the return on every transaction. I have an idea what return I am expecting from each (perhaps 20%+ from SMT, LT Global, but down to only a bit above inflation for RICA or a real return fund). Once I see something dropping below target I will do an investigation to see if it time to sell.


Can you save me some time by giving me pointers on your web lookup on HL? Appreciated :-)
mark senior
Posted: 16 April 2018 09:38:01(UTC)
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Why not simply use the Morningstar Portfolio tool?

A bit cumbersome to use but very complete and does make a stab at producing a personal performance for your portfolio.
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dlp6666 on 16/04/2018(UTC)
philip gosling
Posted: 16 April 2018 10:04:37(UTC)
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I use a net worth annual check to identify any areas that are significantly below expectations or averages. This year it showed capital value fell in London but not Edinburgh and rental income stayed roughly the same but tax on property income has gone up. - I include rental property as I have had some since 1974 (gradually getting larger & more expensive over the years). I offset some of the increasingly grasping tax due on let property by using the rental income to fund my SIPP and reduce overall tax.
Tom Mozy
Posted: 16 April 2018 10:15:23(UTC)
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I run my portfolio like an OEIC. I gave myself 1000 shares in "tom mozy plc" 2 years ago when I set it up. Everytime I add money I issue myself new shares at the current valuation, and will destroy shares when I withdraw. I include my savings account balances in the share valuation and any debt used to buy assets.

I could work out the time weighted return of any £1 in the portfolio but dont bother so long as the share price in "tom mozy plc" is compounding quicker than Ftse all share.

2 users thanked Tom Mozy for this post.
Harry Trout on 16/04/2018(UTC), Tim D on 16/04/2018(UTC)
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