APX32 wrote: ↑Mon Dec 02, 2019 12:23 am

Dumb question, when calculating returns, how do you account for your own contributions? I’ll share my own numbers, I keep everything in a simple spreadsheet.

(All figures rounded to the nearest thousand)

Balance of all investments on Jan 1, 2019: $504,000

401k contributions: $19,000

Company match: $9,500

Backdoor Roth: $6,000

HSA: $3,500

I-bonds: $10,000

Additional savings to taxable account; $20,000

Total savings for 2019: $68,000

Balance as of Dec 1: $692,000

So, my total return is (504,000+68,000) / 692,000 = 17.4%

Do I have it correct? Or do I simply go with how much higher I sit now compared to Jan 1, in which case I’m up 28%.

Be aware you need to divide by the beginning balance, not the ending balance. You are inverting the mathematical relationship in all of your calculations above:

(504 + 68)/692 is 82.6%, which I think you are subtracting from 100% to get 17.4%. This is incorrect, but replicated for clarity.

Total increase is (692-504=) 188/504 = 37.3%. This is not your returns, because as per your comments, it includes contributions. It's still a useful number when looking at your net worth growth, but not for assessing your investment returns.

If one assumes your contributions were spread out evenly over the entire year... A simple estimation model follows.

$692K less 504K = 188K is your returns plus contributions

$188K less $68K contributions = $120K is your returns.

$120K/Beginning balance is your return if you have zero contributions.

To incorporate contributions, assume they were contributed roughly evenly throughout the year (i.e. not all on Jan 1, or Dec 31)

To do that, divide contributions by half, and add to your Beginning Balance.

$68K/2= $34K. $34K plus $504K = $538. This is your revised beginning balance, for purposes of this model.

You can ratio the divisor of the $68k if you think the contribution timing was front end or back end loaded, but am keeping it simple.

Now simply divide your $120K in returns by your $538K revised beginning balance.

120/538 = 22.3%

This would be consistent with a US centric heavily equity portfolio.