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Funds 506: Calculating Your Fund's Personal Rate of Return

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1.
Why does your personal rate of return matter?
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Because it helps you to evaluate how your portfolio and individual funds are performing. Knowing your portfolio's actual returns can help you determine whether you're on track to meet your investment goals and whether your funds are living up to your expectations.
2.
In order to calculate a fund's personal returns for a single year, you need all but which of the following?
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None of the above; you need all of them. All of these are necessary when calculating a fund's personal returns for a single year.
3.
If your personal rates of return for a fund are significantly lower than the reported return over the same period, _______.
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You may be buying and selling at inopportune times. Just because your personal rate of return is lower than a reported rate of return over a given time period doesn't mean that you won't meet your goals. It may, however, mean that you're making trades at inopportune times, thereby sabotaging your results.
4.
When calculating your personal returns on a spreadsheet or financial calculator, why do you have to enter negative numbers for your contributions?
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Because you're trying to figure out the internal return represented by the difference between your final balance and your beginning balance plus the money you've invested. Your returns are the gains you made on the money you invested. In other words, the returns you're calculating are for the final worth of your portfolio, minus the money you started with and invested during the year.
5.
Why might your personal returns in a fund not match the fund's reported returns?
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You didn't invest in the fund at the start of the period that the reported returns cover. Reported returns are based on lump-sum investments over specific time periods. If you use dollar-cost averaging or if you invest in a fund at any other time than at the start of the period, your personal returns will differ from the reported ones.