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For those of us that are thinking of doing your own investing, the comparison between rate of return of the “do-it-yourself” portfolio vs the index fund that you would have bought with the same amount of money is crucial. When I first started investing, I would think that the rate of return would be the first thing that brokerage accounts would provide since this number is so useful. However, I noticed that almost no one provides this (I’m speaking of Etrade and TD Ameritrade here, let me know if your brokerage does). Therefore, I went on to search on how I can calculate the rate of return since I always have money going in and out of the account and all the data that the brokerage shows do not take this into account. I finally found a function in excel that can do this, allowing me to do proper analysis on my performance.
The excel function I found is called XIRR. All I have to do is put in all the dates and amount of money which flows into and out of the account on the spreadsheet, apply the formula and out comes the real rate of return. Please note that XIRR is part of an add-in package from Excel (so follow the instruction on how to install it by searching XIRR in help).
Below is my stock portfolio performance this year calculated using XIRR so you see all the numbers in an example. Note that I put a $0.1 inflow into the account since the formula is expecting the last transaction to be positive. The last line is basically my total portfolio dollar amount (The formula is looking for the difference between negative and positive dollar amounts, so if the inflows are positive, the outflows and also the total dollar portfolio amount should be negative). You will see that each line is the actual transaction. For example, Line 4 in the picture says I have $4500 on April 3rd going into my account and Line 8 says I have $4000 going out of the account on March 29th.
Apart from the fact that knowing your YTD return is cool and fun to track, this useful function really gives you a sense of how your stocks are performing in a practical sense. Let me know if there are easier ways to track performance, so I can use it myself and also share it with the readers.
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{ 2 comments… read them below or add one }
I was always wondering how to do this! I will try it, thanks!
Great!