Calculating Returns
Calculating the rate of return of any investment or endeavor has many aspects to it. If we look at the financial there is a lot of moving parts. The deposits, the withdrawals, the purchases, the sales, the dividends, the interest earned, the expenses, the fund company, the dealer, the operating costs, the trustee fees, the HST, the GST, the broker fees, and the timing, it never all happens at the same time, every transaction weighted, balanced, accounted for over time, short times, long times, various times, changes in fund codes, fund companies, mergers of one with another ….. how do you calculate it all ? Well, here are the main methods that are standardized in our industry, the best practices, for real true returns. Have fun with the figuring. ~ TLR
”It is only when you watch the dense mass of thousands of ants, crowded together around the Hill, blackening the ground, that you begin to see the whole beast, and now you observe it thinking, planning, calculating. It is an intelligence, a kind of live computer, with crawling bits for its wits.” ~ Lewis Thomas
# 1 GAIN/LOSS CALCULATION EXPLAINED
The gain/loss RoR calculation is a simple formula and is not time weighted.
GAIN/LOSS SINCE INCEPTION (NET INVESTED)
Gain/Loss Dollars = MVE – (MVB + Net Invested)
Gain/Loss Percent = Gain/Loss Dollars
MVB + (Net Invested)
Where:
MVE = end market value
MVB = beginning market value
Net Invested = cash flow coming into an account – cash flow going out of an account
Note: This rate of return is being calculated since inception; therefore the market value at the beginning is going to be zero. Please see Gain/Loss Since… for entering a beginning date.
Assuming an account has the following values, the account rate of return would be calculated as follows:
Step One: MVB = $0
MVE = $12 514.97
Net invested = $10 000.00
MVE- MVB- Net Invested
= $12 514.97- ($0 + $10 000)
=$2 514.97
Step Two: Gain/Loss Dollars
MVB + (Net Invested)
= $2514.97
$10 000
= 25.150% (The Gain/Loss return is 25.150%)
GAIN/LOSS SINCE … (NET INVESTED):
This formula uses the same calculation as above, except rather than the market value at the beginning being 0, it would use the market value from whichever day you entered in the “Since” date field available in the report option screen. This would calculate a rate of return based on a time frame rather than “Since Inception” of the account.
