#Cruncher wrote:smalldata wrote:So in terms of comparing to a mutual fund, what's the correct formula to use?

I don't know that there is one since the return reported by a mutual fund only reflects an initial investment at the beginning of the period. It does not reflect investments in subsequent years.

However, as i thought about this I realized one

could compare to a mutual fund by taking

its annual % returns and applying them against

one's own annual contributions. For example, here are the annual returns 1996 - 2011 of the

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) (1) applied against a hypothetical $100 per year contribution.

Code: Select all

`Year % Gain Investment Value`

---- -------- ---------- -----

1996 20.96% [ 100 ] 121

1997 30.99% [ 100 ] 289

1998 23.26% [ 100 ] 480

1999 23.81% [ 100 ] 718

2000 (10.57%) [ 100 ] 732

2001 (10.97%) [ 100 ] 740

2002 (20.96%) [ 100 ] 664

2003 31.35% [ 100 ] 1,004

2004 12.52% [ 100 ] 1,242

2005 5.98% [ 100 ] 1,422

2006 15.51% [ 100 ] 1,758

2007 5.49% [ 100 ] 1,960

2008 (37.04%) [ 100 ] 1,297

2009 28.70% [ 100 ] 1,798

2010 17.09% [ 100 ] 2,223

2011 0.96% [ 100 ] 2,345

[-2,345 ]

IRR: 4.36%

In this case $100 contributed at the beginning of each year starting in 1996 would have grown to $2,345 at the end of 2011. (2) To compare this fund's performance to one's own portfolio performance, replace the dummy $100 annual contributions with what one actually invested each year. (3) Then one can compare the resulting ending value and IRR to that of one's own portfolio to see which did better.

One could also do a similar comparison against an historical index. For instance

Historical Annual Returns for the S&P 500 Index - Updated Through 2011 lists the S&P 500 annual returns going back to 1926.

1) The 1996 figure is no longer shown on the Vanguard page. I'd pulled it a year ago.

2) This produces a 4.36% IRR as calculated in my

first post above.

3) If one's portfolio goes back earlier than 1996, add its value at 12/31/1995 to the 1996 investment.