25 responses

  1. DIY Investor
    February 16, 2011

    Good post! Everybody should calculate or at least know their performance. If someone is managing their money they should know their performance. I agree with you that most people don’t! They see their account is up $5,000 this quarter and figure they’ve done fine when actually it could be horrible performance.
    Schwab actually has started a tool that calculates performance and compares it to a model benchmark which I described in this post:
    http://rwinvesting.blogspot.com/2011/01/how-can-i-calculate-performance-of-my.html

    • moneycone
      February 16, 2011

      I hope others follow Schwab’s lead! I’m sure Fidelity will!

      • DIY Investor
        February 17, 2011

        Whether or not others follow I think depends on whether people ask for it. I talk to a lot of people who have no idea of how their investments are performing. When the market is up they see their statement value has increased and they are happy and when the market is down they are afraid to open their statement. Go figure!

  2. Roshawn @ Watson Inc
    February 16, 2011

    This is a great point and oft-overlooked. I think it is convenient to think of total ROI, but that certainly is not the only important measure to be evaluating.

    • moneycone
      February 16, 2011

      Since most brokers don’t provide this info, the onus is on the investor to find this out in order to a have a realistic picture of portfolio performance.

  3. Barb Friedberg
    February 16, 2011

    Hi Money cone, You reminded me that my old 15 year Quicken files became corrupted about a year ago. Thus, I can only calculate my actual return for about the past 8-10 months! ( Fortunately, for those prior many years I was quite on top of our personal portfolio.)
    I totally agree with the topic. But as a caution, don’t get too concerned about short term returns (less than 5 years). As long as you continue to save and invest, your money will likely grow over the long term.

    • moneycone
      February 16, 2011

      Well said Barb! S&P might be up 15%, but that could just be a cushion for negative returns in the coming years!

  4. Robert @ The College Investor
    February 16, 2011

    Thanks for putting this spreadsheet together. It is also important to note that annualized does mean a one year period. I currently don’t have my returns annualized for my College Investor portfolio because it hasn’t existed for a year yet.

    If I did annualize it, the return would be 53.10%!

    • moneycone
      February 16, 2011

      That is pretty awesome! Of course the hard part is to continue beating the market year after year..!

  5. The Biz of Life
    February 17, 2011

    The publisher of the Beardstown Ladies should be the one feeling the humiliation and shame. No editor worth their salt should have let this one slip past them. I like looking at 10 and 15 year rates of return at a minimum.

    • MoneyCone
      February 17, 2011

      Exactly! How could let something like that slip by? And they put the returns on their cover!

      The publisher wasn’t a small town publisher but Hyperion, a division of Disney!

  6. Squirrelers
    February 18, 2011

    Very good post, Money Cone. It’s a good intellectual excercise for people to really stop and understand their true returns, considering multiple variables. I’ve always suspected that many people not attuned to personal finance tend to not to consider such things as annualized returns, time value of money, etc.

    • moneycone
      February 18, 2011

      Doing this exercise is enlightening. Makes you realize how hard it is to beat the market in the long term. And why any short-term fantastic returns mean little when time is factored in.

  7. Money Reasons
    February 18, 2011

    Great writeup on the topic.

    Shoot, “DIY Investor” stoled my thunder… I too, was going to mention that Schwab does the calculations for you.

    I pretty sure you are right about most people don’t know this stuff. Unless you took finance or accounting classes in college, this stuff is cryptic, to say the least…

    Luckily, I have a minor in business in those areas. I really enjoyed my finance/accounting classes :)

    • MoneyCone
      February 18, 2011

      It takes time to wrap one’s head around this concept! For instance if you had 100% returns one year and -50% return the next your annualized return is 0.

  8. The Dividend Pig
    February 18, 2011

    This is an incredibly useful tool! Annualized return is one of the most misunderstood aspects of investing, and calculating it can be a daunting task. I think this spreadsheet will allow people who may not have previously calculated their returns to do so. Great job!

    • MoneyCone
      February 18, 2011

      Thanks DP! If only more brokerages provided this info…

  9. Buck Inspire
    February 19, 2011

    Excellent post! Can’t say if I beat the market, but at least now I can say I have the tool to correctly figure it out. This seems more accurate because of the all critical time factor. Should we get rid of ROI because it is semi-misleading?

    • moneycone
      February 19, 2011

      Now you are talking like a credit card company Buck! They always want you to think in terms of your minimum payment, not what you’ll actually be paying if you bought an item for say $2000 at 18% APY.

      You’ll be paying 2,423.22 in interest alone, that’s a ROI of 121% for the cc company! They lent you $2000 and got back $4423.22.

      The above example takes both ROI and APY I discussed in my post, into account. This gives you a frame of reference.

      Use a similar analogy for your investments as well.

  10. Aloysa
    February 19, 2011

    Great post. Made me think that I need to take a closer look at our portfolio and at least pay attention to what’s going on. I let it slide all the time unless economic times are rough.

    • moneycone
      February 23, 2011

      You definitely should Aloysa!

  11. 101 Centavos
    February 20, 2011

    Good detailed explanation of returns, MC.

    • moneycone
      February 23, 2011

      Thanks 101C!

  12. BeatingTheIndex
    February 23, 2011

    Loved the post for its detailed explanation.

    As for beating the market, the past doesn’t matter as the challenge at hand is the current year!

    • MoneyCone
      February 24, 2011

      I like the positive attitude!

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