How to Calculate Investment Returns–A Simple Approach

I‘ve had several readers email me about how to calculate investment returns. It seems like it should be a simple task. We all have ready access to our mutual fund and brokerage accounts. These accounts often report a performance measure of some sort. Surely we can bring all of this information into one place to calculate an overall rate of return.

If only it were that easy. Several factors make calculating the return more difficult than you might think. First, compound returns need to be calculated over multiple years. Second, for those making regular contributions to 401k, IRA, or other accounts, the dates of the contributions and the prices of the securities must be tracked. Third, there are different ways to calculate returns, and not all financial institutions use the same method. And finally, the reinvestment of dividends and interest must be tracked, each one representing a separate transaction.

So what I’ve come to rely on more and more is what’s called the You Index™ offered as part of the free Personal Capital investment tracking tool.

You Index™ by Personal Capital

The You Index™ is Personal Capital’s way to track the performance of your investments. Once you connect you investment accounts to Personal Capital, the tool begins tracking your You Index™ automatically.

Here’s what it looks like for my account YTD:

Personal Capital You Index

There area couple of things to note here. First, the bar across the top compares the You Index™ to various indexes based on today’s market returns. In other words, it’s based just on a single day in the market.

The graph below can be set to compare your performance to the market over any number of time periods. For the image I set it to show my investment returns YTD. As you can see, my current performance is 9.16% compared to an S&P 500 return of 8.62%.

There are a couple of things to keep in mind with the You Index™. First, it tracks the performance of individual stocks, mutual funds and ETFs. It does not track cash accounts, money market accounts, individual bonds, or other alternative investments. Second, for stocks and ETFs, the performance is tracked throughout the trading day as prices change. For mutual funds, which are priced at the end of the trading day, they are priced after the market close.

Finally, and I really like this feature, you can look at your You Index™ for just a subset of your investments. I use this to see how my individual stocks are performing as against the indexes. In other words, I’m able to exclude from the performance calculation my mutual funds and ETFs.

Here’s a snapshot of my individual stocks as compared to the S&P 500:

Personal Capital You Index--Individual Stocks

If only every year looked that good!

If you use Personal Capital, be sure to check out the You Index™. If not, you can get access to the Personal Capital investment tracking tool for free.

Published or Updated: August 28, 2014
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

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