Comments on: Question From a Reader – Calculating Returns

By: Lisa

Lisa — Tue, 16 Sep 2008 14:46:02 +0000

This site has helped me so much, but my calculations seem to be way off.
We are trying to determine the annual rate of return from 401(k).

Example:
9/13/2002 ($35,871.41) BEG BAL
12/31/2002 ($921.44) Employee Contr.
12/31/2002 ($507.24) Contr. – ER Match
3/31/2003 ($1,653.72) Employee Contr.
3/31/2003 ($620.13) Contr. – ER Match
3/31/2003 $59.01 Div. pd. out
6/30/2003 ($834.74) Employee Contr.
6/30/2003 ($3,944.29) Contr.-Perf.match
6/30/2003 ($312.97) Contr. – ER Match
6/30/2003 $23.67 Div. pd. out
9/12/2003 ($8,019.00) market change(+)
9/12/2003 $52,662.37 END BAL
0.15% IRR

Can anyone help me with the calculations & let me know what I am doing wrong? I need to figure the annual rate of return for the past 10 years to predict what the 401(k) will be worth in 24 years. I am definatley not doing this out of curiosity – legal situation.

Thanks so much!
Lisa

By: J Davis

J Davis — Sat, 16 Aug 2008 19:01:35 +0000

I appreciate your clear presentation of how to calculate an annual return. It is clear to me from reading that dividend reinvestments should not be entered as additional cash flows. The same would go for interest payments from a bond mutual fund for the same reason. However, my question involves short term and long term capital gains from mutual funds, and if these would be included in the calculation. They are reinvested like dividends, but one could make the argument that they are actually reinvestments of cash flows as well. I am unclear how to model these in my calculation. Any assistance would be greatly appreciated.

By: Marv

Marv — Sun, 20 Jan 2008 21:52:12 +0000

I had been trying for sometime to develop a formula I can
use. The samplelooksgood but can the .5be modified to a different percent to makeit more precise to the date the additionor withdrawl was made. I have tried do apercent ofthe year passed but get some strange results.

By: Mighty Bargain Hunter » Roundup for week of 21 January 2007, and some carnivals

Mon, 29 Jan 2007 00:11:29 +0000

[...] All Financial Matters answers a reader’s question on calculating returns. [...]

By: J.D. @ Get Rich Slowly

J.D. @ Get Rich Slowly — Thu, 25 Jan 2007 21:08:29 +0000

JLP, my cousin (and co-worker) just walked into my office with a list of numbers and asked me how to calculaute his total return for the year. My eyes glazed over, but then I remembered you’d written on it recently. I sent him this link. You get him straightened out, okay?

By: Joseph

Joseph — Thu, 25 Jan 2007 19:10:58 +0000

Thanks for the Tip. I just wanted to add that the XIRR function uses a 365 day year. But I THINK that returns are usually calculated on a 360 day year?

By: The Finance Buff

The Finance Buff — Wed, 24 Jan 2007 23:40:54 +0000

The reinvested dividends should be ignored because they are part of the total return. The $20 account fee should have a negative sign, representing a cash deposit.

See http://www.gummy-stuff.org/xirr.htm

“>And dividends? Uh … yes. I originally suggested that reinvested dividends should be treated as (positive) entries, meaning they’re new investments. In fact, I was wrong and … “

By: Dividend Money » On The Money Blogs

Dividend Money » On The Money Blogs — Wed, 24 Jan 2007 22:18:22 +0000

[...] All Financial Matters answers a reader question about Calculating Total Returns. [...]