Figuring NET portfolio gain

[sengsational]

Here's my way of calculating net portfolio gain or loss, when you have withdrawals or additional deposits. It might be a bit simple and sloppy, but I think it gets you most of the way there.

It's got the benefit of being logical. And it's close for your example: XIRR=-5.329% (vs your formula at -5.278%). With a single withdrawal pulled near the middle of the year your formula works very well. Also works well for uniform pulls over the year.



It's slightly less accurate with 'lumpy' and/or larger withdrawals when compared to the beginning and ending balances, or pulls that aren't uniform across time. But your formula is pretty close; even if your $10K came out on 1/15 instead of 6/1, the XIRR is -5.547%, and if your $10K came out on 12/15 instead of 6/1, the XIRR is -5.036%.

 

[marko]

Here's my way of calculating net portfolio gain or loss, when you have withdrawals or additional deposits. It might be a bit simple and sloppy, but I think it gets you most of the way there.

First, let's pretend you had $100K on 1/1/18.
On 6/1/18, you withdrew $10K.
On 12/31/18, you ended the year with $85K.

I'd run two sets of calculations. The first would be (85000+10000)/100000, which comes out to .95

The second would be 85000/(100000-10000), which comes out to .944444...

Then, take the average of the two (.95+.9444....)/2. Which comes out to .947222.... Or down .052777...

So, in this case, the portfolio was down about 5.278%

It's not exact, but close enough for government work, I guess.

In my case, I've been keeping track since 1998. I saw a negative return in 2000, 2001, 2002, 2008, 2011, and 2018. However, because of additional investments, my net worth was actually up in 2000 and 2011, so NW only fell in 2001, 2002, 2008, and 2018.

Far more exact than I need. (and more complicated than I could ever absorb! My eyes just glaze over)

But that's how TRPrice calculates "personal return" where they figure what date withdrawals and dividends were paid, the value of the portfolio on that date etc.

I'm just trying to insure that I'm staying ahead of the game against inflation and other forces of nature. A positive number is a positive number IMO and the bigger the better. I'm happy just taking my start-of-year balances and figuring a rough number from there; the first of year number will include all dividends, withdrawals and gains from the previous year and I think that should work (the basis of my OP)