By JLP | November 10, 2008
This comment was left by Leland Holliday on an old post, Fun Math: How to Calculate Returns Using Monthly Data:
I used your method on each of the funds in my portfolio for YTD 2008 (thru 10/31/08). The results I got exactly matched the YTD values published in WSJ and on the Fidelity and Vanguard websites. That surprised me, since I had made major transfers during June (greatly reducing the amounts in stock-based funds). Thus, I expected my personal rate of return in those funds to be different from the published returns. Am I doing something wrong, or is the method wrong for my situation?
Most likely what you calculated was not your personal rate of return but the returns of the funds themselves. Your personal rate of return takes into account the timing of your contributions and withdrawals. The easiest way to perform this calculation is with Excel’s XIRR formula.
The only portion of your account that would have received the same returns as those published in the Wall Street Journal are those that were invested during that same exact period.
I hope this helps. For more on the personal rate of return, see this post.