Portfolio Rate of Return Calculator

Portfolio Rate of Return Calculator

function calculatePortfolioReturn() { var startingValue = parseFloat(document.getElementById('startingValue').value); var endingValue = parseFloat(document.getElementById('endingValue').value); var contributions = parseFloat(document.getElementById('contributions').value); var withdrawals = parseFloat(document.getElementById('withdrawals').value); var resultDiv = document.getElementById('portfolioReturnResult'); // Input validation if (isNaN(startingValue) || isNaN(endingValue) || isNaN(contributions) || isNaN(withdrawals)) { resultDiv.innerHTML = "Please enter valid numbers for all fields."; resultDiv.style.backgroundColor = '#f8d7da'; resultDiv.style.color = '#721c24'; resultDiv.style.borderColor = '#f5c6cb'; return; } if (startingValue < 0 || endingValue < 0 || contributions < 0 || withdrawals < 0) { resultDiv.innerHTML = "All portfolio values, contributions, and withdrawals must be non-negative."; resultDiv.style.backgroundColor = '#f8d7da'; resultDiv.style.color = '#721c24'; resultDiv.style.borderColor = '#f5c6cb'; return; } // Modified Dietz Method calculation // Numerator: (Ending Value – Starting Value – Contributions + Withdrawals) // Denominator: Starting Value + (Contributions / 2) – (Withdrawals / 2) var numerator = endingValue – startingValue – contributions + withdrawals; var denominator = startingValue + (contributions / 2) – (withdrawals / 2); if (denominator === 0) { if (numerator === 0) { resultDiv.innerHTML = "Your Portfolio Rate of Return: 0.00%"; } else { resultDiv.innerHTML = "Cannot calculate rate of return. The effective average capital is zero."; resultDiv.style.backgroundColor = '#f8d7da'; resultDiv.style.color = '#721c24'; resultDiv.style.borderColor = '#f5c6cb'; } return; } var rateOfReturn = (numerator / denominator) * 100; resultDiv.innerHTML = "Your Portfolio Rate of Return: " + rateOfReturn.toFixed(2) + "%"; resultDiv.style.backgroundColor = '#e9f7ee'; resultDiv.style.color = '#155724'; resultDiv.style.borderColor = '#d4edda'; }

Understanding Your Portfolio Rate of Return

Calculating the true performance of your investment portfolio can be more complex than simply looking at your starting and ending balances. This is especially true when you've made additional contributions or taken withdrawals during the investment period. Our Portfolio Rate of Return Calculator helps you accurately assess your investment's performance by accounting for these cash flows.

What is Portfolio Rate of Return?

The portfolio rate of return measures the percentage gain or loss on your investments over a specific period. It's a crucial metric for understanding how well your investment strategy is performing. Unlike a simple percentage change, a robust rate of return calculation considers the impact of money flowing into (contributions) and out of (withdrawals) your portfolio, which can significantly skew a basic calculation.

Why a Specialized Calculator is Essential

Imagine you start with $100,000, add $10,000, and end with $115,000. A naive calculation might suggest a 15% return ($15,000 gain on $100,000). However, $10,000 of that ending balance came from your own contribution, not investment growth. This calculator uses a method similar to the Modified Dietz method, which provides a more accurate money-weighted return by approximating the impact of cash flows during the period.

How to Use the Calculator

1. Starting Portfolio Value: Enter the total market value of your portfolio at the beginning of the period you wish to analyze.
2. Ending Portfolio Value: Input the total market value of your portfolio at the end of the period.
3. Total Contributions (Money Added): Sum up all the money you personally added to the portfolio during the period. This includes new deposits, transfers in, etc.
4. Total Withdrawals (Money Removed): Sum up all the money you personally took out of the portfolio during the period. This includes withdrawals, transfers out, etc.
5. Click "Calculate Rate of Return" to see your portfolio's performance.

Interpreting Your Results

• A positive percentage indicates your portfolio has grown in value due to investment performance, after accounting for your own cash flows.
• A negative percentage means your portfolio has lost value due to investment performance.
• A zero percentage suggests your investments neither gained nor lost value, or that the gains/losses were perfectly offset by the timing of cash flows.

Example Calculation

Let's use the default values in the calculator:

• Starting Portfolio Value: $100,000
• Ending Portfolio Value: $115,000
• Total Contributions: $5,000
• Total Withdrawals: $2,000

Using the Modified Dietz-like formula:

• Numerator = $115,000 (Ending) – $100,000 (Starting) – $5,000 (Contributions) + $2,000 (Withdrawals) = $12,000
• Denominator = $100,000 (Starting) + ($5,000 / 2) (Contributions) – ($2,000 / 2) (Withdrawals) = $100,000 + $2,500 – $1,000 = $101,500
• Rate of Return = ($12,000 / $101,500) * 100 = 11.82%

This shows that while your portfolio value increased by $15,000, and you added a net of $3,000, the actual investment growth was $12,000 on an average capital base of $101,500, resulting in an 11.82% return.

Important Considerations

This calculator provides a money-weighted rate of return, which is excellent for understanding the return on your specific capital. For comparing your portfolio's performance against benchmarks or other funds, a time-weighted rate of return (TWR) is often preferred, as it removes the impact of cash flow timing. However, TWR requires daily valuations and is more complex to calculate. For personal portfolio tracking over a single period, this calculator offers a highly practical and accurate solution.