Reported Returns versus Personal Rates of Return

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Reported Returns versus Personal Rates of Return

The simplest way to calculate return numbers for a fund—and the way most sources do it—is to assume you made a single lump-sum investment at the beginning of the reporting period. So the 15% return on your fund assumes that you bought all of your shares right at the beginning of the year.

Often, however, your personal rate of return will be different. If you bought or sold shares during the period for which a return is being calculated, or if you didn’t buy exactly at the period’s start, your personal return won’t match the formulaic return. Put another way: your fund’s trailing 12-month return doesn’t tell you how you’ve been doing if you invested $100 each month rather than $1,200 up front.

Calculating your personal return

Even though personal rates of return are crucial numbers for any investor trying to reach a goal, few fund families provide these returns on investors’ account statements. Why not? Many fund companies brush off any suggestions for improved disclosure by arguing that providing more information would only confuse investors, or by pointing to surveys showing that shareholders are satisfied with the status quo.

Until things change, you’re on your own when it comes to calculating your personal rate of return. If you use an online portfolio manager, you can determine your personal gain or loss in individual funds (and in your entire portfolio) since you made an investment. Or you can enter the dates and prices of any purchases or sales into a financial calculator, or use the internal-rate-of-return function included in spreadsheet software.