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Reader Question – How to Calculate Personal Rate of Return
By JLP | September 17, 2008
I recieved the following comment this morning:
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% IRRCan 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
I ran the numbers myself and came up with a 20.68% XIRR, using the XIRR function in Excel.
My number is different because for two reasons:
1. Dividends are already included in the ending balance so there’s no need to give them their own entry.
2. The same goes for the market change line you have on 9/12/2003. That market change is included in the $52,662.37 ending balance.
So, my numbers look like this:
Remember that the 20.68% is an annualized number.
Topics: Miscellaneous | 1 Comment »
September 17th, 2008 at 10:52 am
this is not hard: started with $35871 on 9/13/02. what’s it worth today? annualize it. go from there. projecting it to the future is a best guesstimate anyway. so, keep it simple.