Time-Weighted Return

[523HRR]

I'm curious whether folks here calculate a time-weighted return for their total portfolio. As differentiated from money (dollar) -weighted return -- e.g. XIRR formula in MS Excel -- the time-weighted return calculation sanitizes for the timing of external money flows -- cash deposits and withdrawals. It is a more involved and time-consuming calculation, but has the benefit of allowing for direct performance comparison with benchmark returns.

If you calculate time-weighted return for your portfolio:
- what do you use it for? why do you bother?
- how often do you calculate it?
- what method do you use (true time-weighted, modified dietz, simple dietz, etc.)?
- do you use MS Excel to do this or some other program / web site?

 

[hlfo718]

Too much work since money is spread among firms and banks. We have a specific target of assets each year based on our contributions and very modest expected returns.

 

[pb4uski]

I use XIRR when assessing return. IMO XIRR takes both cash flow and time into account since it is the interest rate that equates the beginning value and cash flow to the ending value.

 

[Khufu]

Quicken does it for me.

 

[foxfirev5]

Since almost all of my portfolio is in mutual funds and cash I simply take the weighted avg return of my holdings. For my purposes that's close enough. I compare that to my VG and Fido reports which confirm my numbers within a tenth of a %. One year end calculation that takes less than 10 minutes.

 

[Animorph]

No matter how you do it, and XIRR seems fine, you need to have the same cash flows in and out of your benchmark in order to fairly compare them. Still possible with a spreadsheet and historical fund prices, but a bit more work.

 

[FinancialDave]

I recently tried most all of the formulas including XIRR (with many different time periods) for my 2012 return in my 401k. Fidelity puts out a Personal Rate of Return number that they say accounts for cash flows, but even when I downloaded all my transactions from the website, the closest I got to the 26.6% reported by Fidelity was a 33% number from the XIRR analysis. After a couple of phone calls to Fidelity and their explanation, I had to conclude that none of them really knew how the calculation was performed.

In the end I just put all my investments into a Morningstar Portfolio and track the parameters that way.

Dave

 

[523HRR]

FinancialDave....

Thanks. I too have spoken with the rep at Fidelity about their reporting of returns and he ended up agreeing that they don't really provide a true total rate of return at the account level. Disappointing.

However, I have found for my Schwab accounts, they provide some very useful portfolio performance reporting....providing capability to select either time-weighted return or personal (dollar-weighted) return. You can select an individual account or aggregate multiple accounts and also choose a particular time period for calculation. This makes it very useful for comparing performance against benchmark returns. Their calculations tie in nicely to my own calculation is MS Excel.