Investment Returns Title Graphic

Do you often check your brokerage account or mutual fund statements and wonder how they calculate your investment returns?

Are you confused by the fine print in your monthly statements?

Or maybe you just aren’t happy with the return you’re seeing getting, and you’re starting to doubt your investment strategy.

Whatever the reason, this in-depth guide to tracking portfolio performance will show you how to calculate your return on your own, so you can confidently know how your investments are doing.

We’ll start slowly, and by the end of the post, you’ll not only know how to figure out your investment return but also how to track your entire portfolio’s performance, regardless of how many holdings or accounts you have.

Want to cut to the chase? Enter your info below to get your free copy of the portfolio tracker:

What is an Investment Return?

At its most basic level, an investment return is a value an investor gained or lost on their investment, typically expressed as an annual percentage.

In other words, how much money did you make?

To be true to your investment account, you should always consider your total return, which is the combination of capital appreciation (investment holding’s price going up) and distributions (dividends).

Investment Returns = Total Return

A Simple Rate of Return (+ Why It Doesn’t Work for Your Portfolio)

The simplest way to calculate a return is to divide a net gain (or loss) by the beginning balance. 

For example, your account starts January 1st with $10,000 in it. At the end of the year, it has $14,000, for a gain of $4,000.

$4,000 (net gain) divided by $10,000 (beginning balance) = .4 or 40%. This means your $10,000 had a return of 40% to get to $14,000.

This type of calculation is known as return on investment and only works if your original $10,000 is the only part of the story. As in, you invested the $10,000, left it there for a year and had no other contributions or withdrawals.

As you will see later, any other changes to the investment during the period you are looking at can significantly skew the return

For example, what if you contributed $1,000 at the beginning of each quarter to the same investment? Now your return would be 0% since that extra $4,000 came from yourself!

Your contributions don't count as part of your investment returns

The Two Ways You Could Track Your Investment Returns (and Which One You Should Use)

So then, how do you correctly calculate an investment return?

As mentioned, you need to start with the whole story.  As in finding out where you started, where you’re at, and everything that happened in between.

Then, depending on your objective, you can choose between a time-weighted return or a money-weighted return.

As you might have guessed, time-weighted returns give more consideration to how an investment did over time

It disregards cash flowing into or out of the investment (purchasing or selling the holding). 

This type of calculation helps when comparing mutual fund managers. They can’t control investors buying or selling units of their funds and, therefore, have to sell off holdings to pay them out. And, rightfully so, they shouldn’t be penalized for that.

On the other hand, the money-weighted return considers any purchases or sales of funds or holdings throughout the investment period.

A money-weighted return is then more suited for people who are regularly (or irregularly) contributing to or selling off their holdings. 

A money-weighted return is better than time-weighted return for individual investors

Time-Weighted Returns – or I Don’t Care if I Sold at the Bottom

So how do you calculate a time-weighted investment return?

In a nutshell, you need to split your investment period into as many sub-periods as you have contributions or withdrawals.

So, going back to our previous example, if you started the year with $10,000 and made four contributions, you would end up with four sub-periods. 

You then need to find each sub-period return, link them all together, and the result is your time-weighted return!

Let’s take our example a bit further using our newfound knowledge, and let’s make it a bit more interesting using the year 2020 as the investment period.

COVID-19 brought a bear market

As with before, you start the year with $10,000 in your investment account. At which point you immediately add $1000 as it’s also the beginning of the quarter.

Since you’ve been following this blog, you decided to buy into a low-cost Canadian index fund like TDB900.

So, on Jan 2 (because banks are closed on the 1st), you happily purchase 390.4863 units with your $11,000.

On April 1st, July 2nd, and October 1st, you contribute your quarterly $1,000 and purchase another 46.8384, 38.2555, and 36.6569, bringing your total units to 512.2371.

DateUnit PriceDollars InvestedUnits Purchased
Jan 2$28.17$11,000.00390.4863
April 1$21.35$1,000.0046.8384
July 2$26.14$1,000.0038.2555
Oct 1$27.28$1,000.0036.6569

Now, if you held on until December 31st of 2020, when the price of TDB900 was $28.95, your total investment would be worth $14,829.26.

That’s Great, But What About The Time-Weighted Return?

Money-weighted return symbol

Sorry, getting on with the calculation:

We start by splitting our investment period into sub-periods and finding a simple return for each of them.

Continuing with our example, we would have four sub-periods:

  • January 2 to April 1
  • April 1 to June 31
  • July 2 to September Oct 1
  • Oct 1 to December 31

Then we need to find the return for each sub-period.

Remember that you calculate a basic return is by dividing the net gain or loss at the end of a period by the balance at the beginning of a period.

So, for each sub-period:

  1. Find the beginning and ending prices
  2. Multiply them by the number of units or shares
  3. Figure out your net gain or loss
  4. Divide it by the beginning value (beginning price x units)
Sub-PeriodUnits HeldPrice @ BeginningPrice @ EndStarting ValueEnding ValueNet Gain/LossSimple Return
Jan 2 to Apr 1390.4863$28.17$21.35$11,000.00$8,336.88-$2,663.12-24.21%
Apr 1 to Jul 2437.3247$21.35$26.14$9,336.88$11,431.67$2,094.7922.44%
Jul 2 to Oct 1475.5802$26.14$27.28$12,431.67$12,973.83$542.164.36%
Oct 1 to Dec 31512.2371$27.28$28.95$13,973.83$14,829.26$855.446.12%

Time-weighted return calculation symbol

Now that you know each of your sub-period returns, you can finish off the time-weighted return calculation by:

  1. Adding 1 to each return when expressed a decimal
  2. Multiplying all the results together
  3. Subtracting 1 from the result
  4. Multiplying your answer by 100 to get it back to a percentage
Sub-PeriodSimple ReturnWith 1 Added
Jan 2 to Apr 1-0.240.76
Apr 1 to Jul 20.221.22
Jul 2 to Oct 10.041.04
Oct 1 to Dec 310.061.06
Multiplied together1.0277
With 1 subtracted0.0277
As a percent2.77%

And there you have your time-weighted return. 2.77%

Not bad for a year with no certainty.

Um, What About The Bottom?

A crashing stock market


So far, you’re disciplined enough to continue your contributions as the world is coming to an end.

Let’s see what happens if you panicked when your April 1st contribution came due and instead sold off some of your holdings.

As with before, you start the year with $10,000 and immediately start the quarter off by adding $1,000.

Except for this time, you aren’t able to ignore the news, and instead of contributing on April 1st, you withdraw $1,000.

Later in the year, after some positive news in the media, you decide to pick up where you left off with your quarterly contributions.

You were lucky enough to keep your job and not take a pay cut. So, by July 2nd, you’re able to put in everything you took out back in April ($1,000), as well as the April 1st’s and July 2nd’s quarterly $1,000 contributions for a total of $3,000.

By Oct 1st, it’s business as usual, and you make your last contribution for the year.

And on December 31st, your investment would be worth $14,332.32, or $496.94 less than if you had just contributed every quarter.

DateUnit PriceDollars Invested/RemovedUnits Purchased/Sold
Jan 2$28.17$11,000.00390.4863
April 1$21.35-$1,000.00-46.8384
July 2$26.14$3,000.00114.7666
Oct 1$27.28$1,000.0036.6569

So Then, What’s My Time-Weighted Return?

Panicking when the markets are crashing

As with before, we will divide our holding period into sub-periods and find each one’s simple return.

Sub-PeriodUnits HeldPrice @ BeginningPrice @ EndStarting ValeEnding ValueNet Gain/LossSimple Return
Jan 2 to Apr 1390.4863$28.17$21.35$11,000.00$8,336.88-$2,663.12-24.21%
Apr 1 to Jul 2343.6479$21.35$26.14$7,336.88$8,982.96$1,646.0722.44%
Jul 2 to Oct 1458.4145$26.14$27.28$11,982.96$12,505.55$522.594.36%
Oct 1 to Dec 31495.0714$27.28$28.95$13,505.55$14,332.32$826.776.12%

Are you noticing a pattern?

Your sub-period returns are the same as when you contributed on April 1st.

Which, following through with the rest of the calculation, you end up with the same time-weighted return.

Sub-PeriodSimple ReturnWith 1 Added
Jan 2 to Apr 1-0.240.76
Apr 1 to Jul 20.221.22
Jul 2 to Oct 10.041.04
Oct 1 to Dec 310.061.06
Multiplied together1.0277
With 1 subtracted0.0277
As a percent2.77%

Therein lies the problem with the time-weighted return. 

Time-weighted returns are not the best option

You contributed $14,000 for the year in both scenarios. But, when you sold some of your position when the market was down, you ended with almost $500 less.

Yet, your time-weighted return was still 2.77%.

As you can see, this type of return isn’t well suited for tracking individual investors’ portfolio performance since it ignores investor behaviour.

So then, how do you account for investor behaviour?

Money-Weighted Returns – or How’d I do for Buying at the Bottom

The money-weighted investment return is your friend for emphasizing how your investor behaviour affects your portfolio.

If you buy at the bottom, you will see a boost in your return that you wouldn’t if you bought at the top (as you rightfully should).

Return boost for buying at the bottom

You won’t just see how your holding performed but also how your choice of when to increase (or reduce) your position affected your return.

So how do you calculate a money-weighted return?

It’s a bit more complicated than the time-weighted return (of course), but luckily for you, I have a spreadsheet set up here that does it all for you.

All you need to do is fill in the dates and values for your starting and ending balances, and then the same for any cash flows (purchases/sales/distributions) in between.

Just make sure you enter any purchases as a negative number and any sales as a positive. 

You can think of it as cash flowing out of your hands (negative) to your broker to pay for the securities and when you withdraw the cash flows back to you (positive).

So, how would our previous example look in the eyes of a money-weighted return?

Money-weighted return symbol

We start with our typical contribution schedule:

DateUnit PriceDollars InvestedUnits Purchased
Jan 2$28.17$11,000.00390.4863
April 1$21.35$1,000.0046.8384
July 2$26.14$1,000.0038.2555
Oct 1$27.28$1,000.0036.6569

And populate our spreadsheet with these contributions and ending balance:

DateCash FlowsAction
2020-01-02-$11,000.00Beginning Balance
2020-12-31$14,829.26Ending Balance
Money-Weighted Return6.66%

Now that’s more like it! 

2020 was certainly rough, but if you stuck to your investment plan and ignored the hysteria, you would have made out with a pretty decent return by the end of it.

Unsure about investing when the markets are low

But what if you hadn’t been so diligent?

Going back to our panicked scenario:

DateCash FlowsAction
2020-01-02-$11,000.00Beginning Balance
2020-12-31$14,332.32Ending Balance
Money-Weighted Return2.78%

Not terrible, but still less than half compared to when you stuck to contributing.

As you can see, the money-weighted rate of return is the ideal way to track your investment return as it takes into account your behaviour – which can sometimes contribute more to your portfolio’s gains or losses than the investment itself.

How to Calculate Your Portfolio Performance So You Can Brag (or Cry) to Your Friends

Illustration of person talking about money to their friends

So, how do you calculate investment returns for an entire portfolio?

Well, it’s not any different than calculating for a single investment. 

It could even be a little bit easier since you aren’t looking at individual securities, the number of holdings or even the price of the assets.

You can even still use the spreadsheet I linked to earlier. You’ll just likely need to add a lot more rows.

The critical thing to keep in mind is, since you’re not tracking a sole investment anymore, you shouldn’t be considering individual stock purchases and sales. 

You’re just going to be worried about flows of cash in (contributions) and out (withdrawals) of your investment account. In other words, you ignore the actual purchasing and selling of your securities as far as the calculation goes.

Illustrating cash flowing into and out of investment portfolio

Now, moving on with our example:

Let’s pretend you’re an aggressive investor holding five different stocks to make things a little more interesting. 

As usual, you start the year with $10,000 and contribute another $1,000 every quarter. 

However, 1 of your stocks pays a quarterly dividend starting on Feb 15th, and your portfolio balance ends the year at $15,500.

The cash flows for your account could then be summarized as follows:

Jan 1Starting-$10,000.00
Jan 2Deposit-$1,000.00
February 15Dividend-$40.00
April 1Deposit-$1,000.00
May 15Dividend-$40.00
July 2Deposit-$1,000.00
Aug 15Dividend-$40.00
Oct 1Deposit-$1,000.00
Nov 15Dividend-$40.00
Dec 31Ending$15,500.00

If you entered all of these cash flows into the spreadsheet, you would end up with a money-weighted return of 10.71%.

Well done, that’s a pretty good return. 

Or is it?

A Good Return Can Be a Bad Return Too

While you would usually be happy with a 10% return, it’s important to note that investing (like everything else) doesn’t happen in a vacuum.

When a 10% return isn't a 10% return

It’s always a good idea to compare your return to a benchmark to understand how well you really did.

This comparison is probably more beneficial when your return is negative, as it could prevent you from abandoning an otherwise sound investment strategy.

So then, what should you use for a benchmark?

It’s best if you try to find an index that most closely resembles your portfolio

And by that, I mean if you are holding 100% Canadian equities, you’d want to choose an index that consists of 100%  Canadian equities.

It’s okay if you can’t find an exact match. 

What’s more important is that you choose a benchmark that resembles the investment strategy you are using and stick with it as long as you use that strategy.

Okay. So you’ve got a benchmark that looks close enough to your investment portfolio, now what?

You need to figure out how that index did, which you can do by revisiting our simple return formula:

(Index’s ending value) – (Index’s starting value) / (Index’s starting value)

The S+P TSX Composite Index over the course of 2020

For example, using this Yahoo chart, you can see that (according to their data) the S+P/TSX Composite Index started the year at 17,100 points and ended at 17,433.

Using our formula, we get a return of just under 2%.

So, your 10% return would’ve certainly beaten your benchmark if this index was representative of your portfolio.

A (Free) Portfolio Tracker That’ll Keep You Honest and Proud

Want to keep all of this portfolio performance and investment return stuff organized in a neat little package?

I made you a google sheets portfolio tracker for just that.

You can store your historical investment returns and compare your benchmark all in one place. It even includes the money-weighted calculator and a bonus asset allocation tool.

And the best part? It’s completely free for email subscribers. Just fill out the form below to get your link sent to you.