Time weighted return, including dividends, brokerage fees and margin interest.
And excluding any withdrawals or deposits to principal.
Q1 return was 5.1% compared to a -1.0% return for the S&P 500 benchmark.
So I handily beat the market, albeit with a high level of volatility over the quarter. I must admit it was emotionally a roller coast ride, some days I felt like a complete idiot, other days like the King Kong of Wall Street.
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WADR, if deposits or withdrawals are significant, then the returns are useless... like if you added $10k to a $1 million portfolio in early January then that 5.1% is more like 4.1%... and vice versa if you had significant withdrawals.
Can you give me an example of how this "time weighted return" is calculated?
For example, if on Jan 1 the portfolio is $1 million and on Feb 1 $50k is added and on March 1 $5k is withdrawn and at Mar 31, the balance is $1,075k... what is the time-weighted return? (The XIRR is 12.49%).
Time-Weighted Rate of Return Calculation Examples
As noted, the time-weighted return eliminates the effects of portfolio cash flows on returns. To see this how it works, consider the following two investor scenarios:
Investor 1 invests $1 million into Mutual Fund A on December 31. On August 15 of the following year, his portfolio is valued at $1,162,484. At that point, he adds $100,000 to Mutual Fund A, bringing the total value to $1,262,484. By the end of the year, the portfolio has decreased in value to $1,192,328.
Investor 2 invests $1 million into Mutual Fund A on December 31. On August 15 of the following year, her portfolio is valued at $1,162,484. At that point, she withdraws $100,000 from Mutual Fund A, bringing the total value down to $1,062,484. By the end of the year the portfolio has decreased in value to $1,003,440.
- The holding-period return for the first period, from December 31 to August 15, would be calculated as:
Return = ($1,162,484 - $1,000,000) / $1,000,000 = 16.25%- The holding-period return for the second period, from August 15 to December 31, would be calculated as:
Return = ($1,192,328 - ($1,162,484 + $100,000)) / ($1,162,484 + $100,000) = -5.56%- The time-weighted return over the two time periods is calculated by geometrically linking these two returns:
Time-weighted return = (1 + 16.25%) x (1 + (-5.56%)) - 1 = 9.79%
- The holding-period return for the first period, from December 31 to August 15, would be calculated as:
Return = ($1,162,484 - $1,000,000) / $1,000,000 = 16.25%- The holding-period return for the second period, from August 15 to December 31, would be calculated as:
Return = ($1,003,440 - ($1,162,484 - $100,000)) / ($1,162,484 - $100,000) = -5.56%- The time-weighted return over the two time periods is calculated by geometrically linking these two returns:
Time-weighted return = (1 + 16.25%) x (1 + (-5.56%)) - 1 = 9.79%
Read more: Time-Weighted Rate of Return https://www.investopedia.com/terms/t/time-weightedror.asp#ixzz5BFKD0Vjb
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12/31/2017 | Beginning balance | 1,000,000.00 | 1,000,000.00 |
8/15/2018 | Addition | 100,000.00 | (100,000.00) |
12/31/2018 | Ending balance | (1,192,328.00) | (1,003,440.00) |
Return | 8.91% | 10.74% | |
-1.0% YTD, all-in, spend adjusted. REIT was most of the problem.
Actually, I found this example on Investopedia:
Investor 1 invests $1 million into Mutual Fund A on December 31. On August 15 of the following year, his portfolio is valued at $1,162,484. At that point, he adds $100,000 to Mutual Fund A, bringing the total value to $1,262,484. By the end of the year, the portfolio has decreased in value to $1,192,328.
...
Time-weighted return = (1 + 16.25%) x (1 + (-5.56%)) - 1 = 9.79%
Investor 2 invests $1 million into Mutual Fund A on December 31. On August 15 of the following year, her portfolio is valued at $1,162,484. At that point, she withdraws $100,000 from Mutual Fund A, bringing the total value down to $1,062,484. By the end of the year the portfolio has decreased in value to $1,003,440.
...
Time-weighted return = (1 + 16.25%) x (1 + (-5.56%)) - 1 = 9.79%
But... if you XIRR the examples then the returns are different:
12/31/2017 Beginning balance 1,000,000.00 1,000,000.00 8/15/2018 Addition 100,000.00 (100,000.00) 12/31/2018 Ending balance (1,192,328.00) (1,003,440.00) Return 8.91% 10.74%
The IRR, also commonly referred to as the dollar weighted return, is the measurement of a portfolio’s actual performance between two dates, including the effects from all cash inflows and outflows. Because cash flows are factored into the calculation, greater weighting is given to those time periods when more money is invested in the portfolio. By this definition, the IRR of a portfolio can be significantly affected by both the size and timing of any cash contributions or withdrawals.
The TWR captures the true investment performance by eliminating all the effects of capital additions and withdrawals from the portfolio. Simply stated, the TWR is the return on the very first dollar invested into the portfolio. This makes the TWR a more meaningful measurement of performance when used to analyze the underlying performance of the portfolio’s assets or comparing your investment manager performance to alternative investments.
I gave examples of such single-fund portfolios: http://www.early-retirement.org/for...t-performance-thread-90118-9.html#post2031783Correction to my earlier post on S&P I earlier stated it was down -1.23%, but other sources state it is down -0.76%, I assume with Div based on SPY not the index.
I am more curious about real reports from those using a VG Boglehead 3 fund or 4 fund 60/40. My tracking shows these would have performed much worse. However Portfolio visualizer shows -0.7 and -0.75 % ytd, and SPY at -1.0%.
Somehow real numbers from actual portfolios differ, and I know this is one period where the Wells took a larger hit than most due to bond duration I assume.
Yes.Correction to my earlier post on S&P I earlier stated it was down -1.23%, but other sources state it is down -0.76%, I assume with Div based on SPY not the index...