**Re: How is your MF portfolio doing? 6 months into 2005.**
Laurence said:

Hey...I'm all of a sudden up almost 3% YTD. Not bad...but I have a question. Those of you still accumulating, how do you accurately determine your return with big chunks of money going in every other week?

Being a numbers man, I have quite the complex calculations to determine that.

Start with an arbitrary date. Let your portfolio 'share price' equal a benchmark (say, 100.00). Simply take the value of your portfolio (either your entire net worth, or keep separate values for each account), and divide it by your benchmark price. This gives you the total number of 'shares' in your account. Then, you only change the number of shares when you either contribute or withdraw from the account.

Ex:

Portfolio value: $100,000

Arbitrary Benchmark: 100.00

Total number of shares would be 100,000/100 = 1,000.00 shares

So, say 2 weeks later, you deposit $1,000. Right before you make the deposit, your account value has gone from $100,000 to $110,000. Your original total shares was 1,000.00. Your new portfolio price when you made the deposit was 110.00, ($110,000 portfolio / 1,000 shares) so your $1,000 contribution bought shares at $110.00/share (just like how a mututal fund works).

now comes the complex part.....you can start tracking your performance by using the "Price per share" in a number of ways: Year-to-date, trailing 12 months return, annualized total return since you started tracking it, etc. Some of the equations can involve some pretty heady math.

Also, to make it more complicated, I also like to 'dollar weight' my contributions. That means that if you start off with just $1,000 in 1995 and keep that original $1,000 in the account and let it grow to $2,000 in 2005, then suddenly deposit $1,000,000 into the account in 2005, using 'normal' equations your return-since-inception will drop to next-to-nothing since your $1,000,000 deposit dwarfs your portfolio value and has had just 1 day to grow, and hasn't done anything yet. To weight this factor in, I take the number of days from the deposit until now, and then multiply it by the value of the deposit. Sum up all of the "deposit-days", and divide it by the total deposits, to arrive at the "dollar-weighted days" that your portfolio has been growing.

You can then use these number of days in various formula to determine returns since inception, etc.

The "contribution weighted" method is most helpful in my IRA accounts, since my employer first started depositing my contributions as a % of salary in 1998, and I didn't make much as a summer intern when I first started (but have nice contributions these days). If I didn't dollar-weight my IRA contributions, it would show pretty meagher returns since inception since the account has mushroomed in value mainly due to contributions rather than returns.

NOTE: I didn't start the "benchmark" valuation tracking method until Nov 2004. If you start the benchmark method early enough, you can skip the 'contribution weighting' method, since, over time, your mutual fund-like calculations WILL automatically weight the dollars correctly. The only reason I use the dollar-weighted contribution now is that I know the exact dates of the contributions dating back to 1998, and I can calculate fairly accurate returns-since-inception to see how I've done in the past 8 or 9 years.

In about 10 more years, when I have enough data on the 'mutual fun-type' purchases, I'll ditch the whole dollar-weighted scoring.