How do you track portfolio performance

[marko]

Another slow day at the marko household, another narrow question for the group:

With year-end coming I tend to keep two sets of books:
A 'gross portfolio performance' number which does NOT include withdrawals and a 'net' number which does.

While I realize/believe that the net is what really matters, I view my gross number as important to see what the portfolio performance really is doing.

For an extreme example, were I to only measure my net, a year where I withdrew more than my portfolio grew, I might assume that my AA or fund choices were faulty.

I have been tempted to simplify my Excel madness and only track my net and take my gross from M* at year's end but that will mess up 16 years of meticulous weekly record keeping, all of it mostly focused on gross comparisons.

Does anyone else keep two sets of performances or am I all alone in Excel hell?

 

[pb4uski]

Your return is relevant only if you add back withdrawals to your ending balance.

Let's say you have $1,000k at the beginning of the year, $1,100k on the morning of Dec 31 and you withdraw $40k on Dec 31 so you end the year with $1,060k

Your return is 10%... but to get that you need to take the $1,060k ending balance, add back $40k of withdrawals and then divide the $1,100k total but the $1,000k beginning balance and subtract 1 from the result.

($1,060k ending balance + $40k withdrawals)/$1,000k beginning balance = 1.10; 1.10-1.00 = 0.10 = 10%

I don't see where the 6% that you would get by comparing $1,000k at the beginning of the year to the $1,060k at the end of the year has any relevance to a "return"... perhaps to the change in you net worth though... IOW, the return was 10% but your net worth only increased 6% because of 4% in withdrawals.

 

[marko]

Your return is relevant only if you add back withdrawals to your ending balance.

Yes. That's what I do.
I keep a running number that doesn't include withdrawals to track my gross. I have a separate page that tracks my net which does include my withdrawals.

The gross tells me actual portfolio performance while the net tells me actual NW and true balances.

 

[SumDay]

I use this calculator: Investment Return Calculator: Measure your Portfolio's Performance

I don't do Excel (I was scarred as a w*rking woman by it ), but do also use Quicken and Personal Capital which are fine for my purposes.

 

[Car-Guy]

For actual "equity" trading I just use the on-line tools w/Schwab. For all assets, I just calculate/track my NW on a monthly basis with Excel. Once I retired I quit tracking everything. The "bottom line" is all that really matters to me. I know what my monthly spend rate is and if things go up or down too much in any given month, I'm usually aware of "why" without needing to track it.

 

[OldShooter]

I used to be on the investment committee of a nonprofit that had been snookered into using a Morgan Stanley "wealth manager" FA. (Don't do it!!!) The M-S quarterly reports included "Time-Weighted Return" and "Dollar-Weighted Return." I never understood the value of the latter, since it basically measured how lucky we were when we added or removed money from the account. OTOH my wife watches her IRA balance for any declines year over year, completely uninterested in rate of return. Which makes sense in a way in retirement.

For myself, 90% of our money (including hers) is passive. I don't look at return very much at all there since I know I am getting the market less some tiny tracking error and less a few basis points.

For non-passive money, though, I start by separating the equity tranche from the fixed income. (When you pour red and green Kool-Ade into the same glass, it's impossible to know which contributed to the resulting color.) So once I have the equity numbers I compare to a few different yardsticks. One is a benchmark I made myself, starting with 5 years ago with $100K 65/35 US/International total market funds, with dividends reiinvested and no rebalancing. The second is the All Country World Index and if I use a third it will be either the Russell 3000 or the Wilshire 5000. If the portfolio equity yield shows a significant variance from one or more of these I want to know why. For example, my 65/35 benchmark has handily beat the ACWI for the past 5 years. Reason: It has more home country bias and the US has led the internationals during that period. Any reason to change? No.

I don't care about bond yields. I have a very simple view of bonds: length, risk, yield. Pick any two and the market will give you the third. We've picked long TIPS and I pay almost no attention to that tranche.

... I have been tempted to simplify my Excel madness and only track my net and take my gross from M* at year's end but that will mess up 16 years of meticulous weekly record keeping, all of it mostly focused on gross comparisons. ...

This sounds like a sunk cost problem to me. Ignore all previous costs and make your decision looking foward, based on the future benefits you get from doing the extra work.

 

[nancyfrank232]

I used to track performance a long time ago, but now that almost all equity holding is in a low-fee S&P500 index and Berkshire Hathaway, I no longer see any benefit to do it

What I track is our cash flow from rentals, cash on hand, and NW

 

[davebarnes]

With a very simple spreadsheet.
The lower left corner shows the total value of our holdings at Fidelity.
Once a month, I prepare a current condition spreadsheet and then look to see if the total is larger or smaller.

 

[RunningBum]

I just don't see the relevance of calculating my investment return. I'm mainly in index funds, so it's going to match the mix of the index for my AA, less fund expenses. I can look up the various returns for each index I own online. Unless I don't trust that VG is actually giving me the right amount for my index shares, I don't know what I'd do with that number. A high return has nothing to do with my investment know-how, it means the markets were up for the year.

If it were easier, I'd do accurately, I'd do it. I know I could do some formula that subtracts my withdrawals, but there's a difference if I take a big withdrawal early in the year vs. late in the year. It was more of a factor when I was still working and adding money to my investments, sometimes in big chunks (after a stock option exercise), sometimes dribbling in (401K paycheck deductions).

I'm actually a little puzzled why I don't track performance. I'm a numbers person, so it seems like this would be a number I would track.

I do track my % change in portfolio from one year to the next, which takes into account portfolio performance and withdrawals. I don't do much with it, but it's easy to do on my VPW spreadsheet and I guess it's interesting to see how much I've withdrawn over the year but still show a gain many years.

I'm not trying to convince anyone they shouldn't track their performance. I often browse the performance threads out of interest. I wonder if people are using the same methods but it really doesn't matter to me.

Maybe what I'm saying is that if someone isn't tracking performance and wonders if they should, they don't have to if they don't want to.

 

[Gumby]

I note my actual portfolio total at the end of every month, which is the key thing I want to know. That is, of course, net. At the end of the year, I make adjustments for any additions to and/or subtractions from the portfolio and calculate actual investment performance for the year. I don't really need to know more often than that.

 

[Alan]

I use a spreadsheet. Portfolio value at start of year and end of year and month by month record the net of withdrawals and contributions. Then use the IRR function to calculate the return.

 

[scrabbler1]

I calculate a month-to-month change in my portfolio, excluding withdrawals and deposits. Then, I multiply together 12 straight month-to-month changes to get a annual change. I do this for my bond funds, too. Sometimes, I had the bond funds reinvested their monthly dividends, sometime, I took them as cash, sometimes, I did a sweep into another fund. I would have to make sure I noted that monthly dividend when determining the monthly change.

 

[RunningBum]

Turns out I lied. In my VPW spreadsheet, I do have an attempt at my investment return, by taking the (year end balance + distributions - begin of year balance)/(beg of year balance). It doesn't take into account when I did the distributions. Shows how much I use this, I didn't even remember that I do it.

I do some games with Roth conversions that should prevent conversions and the tax paid on conversions from having an effect on this.

 

[pb4uski]

I use a spreadsheet. Portfolio value at start of year and end of year and month by month record the net of withdrawals and contributions. Then use the IRR function to calculate the return.

+1 My rows are 1/1/yy and the date of each withdrawal (no additions but if there were they would be included) and then 12/31/yy and the end of month balance.... and I use the XIRR function.... because I use the 12/31/yy date even though the ending balance might be of an earlier month end gives me a YTD return rather than an annualized return.

I also track the highest month end balance ever compared to teh current month end balance (please don't ask me why as I have no good reason for doing it... for curiosity sake I guess).

 

[NW-Bound]

Your return is relevant only if you add back withdrawals to your ending balance.

Let's say you have $1,000k at the beginning of the year, $1,100k on the morning of Dec 31 and you withdraw $40k on Dec 31 so you end the year with $1,060k

Your return is 10%... but to get that you need to take the $1,060k ending balance, add back $40k of withdrawals and then divide the $1,100k total but the $1,000k beginning balance and subtract 1 from the result.

($1,060k ending balance + $40k withdrawals)/$1,000k beginning balance = 1.10; 1.10-1.00 = 0.10 = 10%

The above is a good 1st estimate. It is accurate if the withdrawal is at the end of the period, but is slightly off if you withdraw at the beginning of the period or throughout the year.

For periodic withdrawals made throughout the year, the following method, which we call the "Moneychimp" method, is quite accurate. Basically, it approximates the periodic withdrawals by allocating 1/2 of the withdrawal to the start of the period, and 1/2 to the end.

I learned about this method from sengsational, and found that it was particularly good for me as I withdraw through the year as needed.

I even made a spreadsheet to compare the Moneychimp method to the XIRR method, using my own actual numbers, and the difference was down in the 0.01%, if memory serves. And I reported about this on this forum too.

I use this calculator: Investment Return Calculator: Measure your Portfolio's Performance

I don't do Excel (I was scarred as a w*rking woman by it ), but do also use Quicken and Personal Capital which are fine for my purposes.

And by the way, although I use Quicken, I do not trust their return calculation. I use the total account values, pull up the expenses and incomes, then use the Moneychimp formula.

 

[pb4uski]

....I even made a spreadsheet to compare the Moneychimp method to the XIRR method, and the difference was down in the 0.01%, if memory serves. And I reported about this on this forum too.

And by the way, although I use Quicken, I do not trust their return calculation. I use the total account values, pull up the expenses and incomes, then use the Moneychimp formula.

+1 my spreadsheet also includes a money chimp like calculation and since my withdrawals are fairly constant it is usually within a few basis points of XIRR... 15.04% vs 15.01% XIRR as of YTD Oct.

The forumla that I use for money chimp is :

=AVERAGE(RATE(1,withdrawals,-beginning balance,ending balance,1),RATE(1,withdrawals,-beginning balance,ending balance,0))

Quicken's performance report return is really quirky so I don't use it, but I will use it to look at the performance for each ticker... it seems ok for that.

 

[W2R]

My entire portfolio consists of:

VBTLX (Vanguard Total Bond Market Index)
VWIAX (Vanguard Wellesley Income Fund)
VTSAX (Vanguard Total Stock Market Index)
VFWAX (Vanguard FTSE All-World Ex-US Index)
TSP "G Fund (Government bond fund)

plus bank accounts and a very tiny bit of VWELX (Vanguard Wellington).

As you can see, these are mostly index funds. I don't see much point in tracking portfolio performance. Plus, it is good enough overall to support my lifestyle several times over, and my AA is one that got me through the Great Recession without selling low.

I guess I should care if my portfolio is twice what I need or ten times what I need, but really I don't. It would just mean more taxes and my lifestyle would remain the same, because I don't want anything more.

I am in the delightful position of knowing that I have Enough. I do calculate my portfolio value every day out of curiosity (biggest of all time was yesterday!). Then I record it once a month, so that I can tell at a glance that nothing drastic has changed, and that I still have Enough.

 

[nancyfrank232]

Maybe what I'm saying is that if someone isn't tracking performance and wonders if they should, they don't have to if they don't want to.

+1

Good advice!

 

[rk911]

we use Quicken. i update share prices daily and run a net worth report every friday the results of which i plug into an Excel spreadsheet. been doing that for 10+ years. good way for us to track net worth.