Rate of return.?

Question

I have six different investments pooled into one account. I want to know how to figure out what the rate of return is over the life of my investment.

I have the following rates of return on each: 4.7%, 15.3%, (19)%, 60%,94.7% and 39.6% during the life of investment. How do I find figure what the average rate of return is? My statements do not have that information listed and when I called customer service they told me that I would have to do it manually but couldn't tell me how to do it!

Thanks in advance for taking the time to help me with this question.

Answer 1

Do a weighted average. You need to multiply the % of each investment times the return, then add them all together.

Answer 2

The rates of return aren't going to help you, because the weights change as the different funds perform differently. What you need is the beginning total amount of money and your ending total amount. As long as you haven't added any money or taken any out, the math is pretty easy. The total return over the life is (ending value/beginning value)-1. If you have added or subtracted money, it gets trickier because you will have to calculate a rate of return from one cash addition/withdrawal to the next and then link them together.

By way of example, assume that you started with $100 on January 1. On June 1 your portfolio was worth $110, and you added $50, and then on September 1, your portfolio was worth $140 and you took out $50 and then on December 31 your portfolio was worth $100 again. It would look like a zero return, but because of the timing of cash flows what you get is:

Return Jan 1 - June 1 = (110/100)-1 = 10%
Return June 1 - September 1 = [140/(110+50)]-1 = -13%
Return September 1 - December 31 = [100/(140-50)]-1 = 11%

So to string them together you get [(1+10%) * (1-13%) *(1+11%)]-1 = 6% return.

It's a kind of manual process, but that's the formula. If you have more than a year, you will probably want to annualize the returns too. That step is to add 1 to your return and then raise it to the 1/number of years and then subtract the 1. In the example above, if that had been over two years, the formula would look like:

[1.06^(1/2)]-1=2.96%


Hope that helps

Answer 3

You should calculate a weighted average as mentioned in a previous answer but that will give you a weighted average return and you want a time weighted average return. Before calculating the weighted average take the return of each investment and divide it by the number of months that you have owned it. This will give you an average monthly return. Then multiply it by 12 for an average annual return. Take these average annual returns and multiply them by their respective weights within the portfolio. Now you have the time weighted average return and it has been annualized.