Figuring out annual total return

[quote=scrim67]

I know I should be able to figure this out but I need help:

Clients invests 100,000 on 6/1/05

adds  100,000  on 1/1/06

total value now is 213,000.

what is the annualized total return?

scrim

[/quote]

Anybody wanna bet that Maybeeeeee will know?

8.13%

how do you compute when you add money at different intervals?

Scrim, there are a few rate of return calculators available on the net or just use a business calculator that give you options whether an additional investment is done on a weekly, monthly or yearly basis.   Therefore, I just inputed 100k initial investment, 100k additional investment and the time period roughly 10 months, I just adjusted the annualized return until I got your number of 213k which gave an annualized return of 8.13% and holding period return of 6.49% for 10 months.  I did not give any weighting to whether the 100k was done in month 2 or month 10.  The only reason it would matter if we knew the stated amount of interest or return and we were determining the ending total value and to figure out the compounded annual return.

Scrim this isn’t that simple of a calculation. Without a financial calculator it is nearly impossible over long periods of time. Look up the Modified Dietz Formula on the web for the actual function. A TI BA-II Plus or an HP Financial Calculator will allow you to calculate time-weighted returns.    

There is only one simple way to do this.

Determine monthly simple returns, month to month.  Net out any contributions or withdrawals.  This will make the most sense to your client and to you.

In other words - get out of the box!

Scrim-Get a HP 12C .

Your need to use the Time Weighted Return to caclulate portfolio
performance such as this.  I would use an HP, but there is a long
hand formula you can use:



r(T) = prod[MV(t+1)/{MV(t)+C(t)}] - 1

[quote=rightway]Your need to use the Time Weighted Return to caclulate portfolio performance such as this.  I would use an HP, but there is a long hand formula you can use:

r(T) = prod[MV(t+1)/{MV(t)+C(t)}] - 1




[/quote]

Is are you sure of that formula?  They're a lot like Chinese in that they all look alike.

Just an aside, even an HP is not going to be perfect. In order to calculate the accurate yield you need to keep track of every individual inflow of investment income because once you have collected that cash you no longer have as much invested so your rate of return is higher than it appears if  you divide by a constant such as $100,000.

I know a guy with way too much time on his hands who built an Excel spreadsheet with every cash event in the portfolio.  It seems like he was actually figuring out how much was invested every day and using that information to come up with what I guess is a weighted average daily investment.

Why not just tell you client, "Look, jackass, you have more than you started with and that is good" and leave it at that?  Injecting the word jackass is optional and may not be effective.

Perhaps Maybeeee can look it up in Miss Manners and report back.

Is are you sure of that formula?

"Is are" be a phrase used in Slovinia.  It is a lot like, "right opposite."

Look it up.

it’s not correct. the right number is 5.4%

[quote=ezmoney]it's not correct. the right number is 5.4%[/quote]

How could that possibly be?

The portfolio is worth 13,000 more than has been put into it and it's been less than a year.

If it had been a year, and all 200,000 had been invested for the full time the return would be no less than 6.5%.

You are in the financial business and things like that don't just scream off the paper as being not only inaccurate, but not even possible?

I've got an HP10B, and if I could find my instruction manual, I could pin this number down for you.  the 10B and the 12 that someone mentioned earlier will allow you to put in multiple deposits at various times and calculate the IRR.

I'm too lazy for that, so I just do a quick and dirty average balance for the time period and use that as the denominator, with the gain as the numerator.  That gives you a rough period return, which is easy to annualize.

Using your example, I figure that you have $100,000 on deposit for 214 days and $200,000 on deposit for 77 days.  That gives you an average on deposit of $126,460.49.  If you divide $13,000.00 by that number, you get 10.28% period return.  You can annualize that by dividing 10.28% by 291 days and multiplying by 365 days.  That gives you an annualized ROR of about 12.9%.  There are some flaws in the calculation, but that kind of quick and dirty analysis is understandable and acceptable for most clients and is good enough for me to leave the 10B in it's protective pouch.  Besides, I get quarterly performance reports automatically out of the LPL system and the clients get them too, so this has become a non-issue fo me.

OK, math majors...go ahead and correct me.

[quote=Indyone]

I'm too lazy for that,

[/quote]

There's the motto of just about everybody who is under age 45.

putsy's back.....

and.... youre still a d$ck...

[quote=Big Easy Flood][quote=Indyone]

I'm too lazy for that,

[/quote]

There's the motto of just about everybody who is under age 45.

[/quote]

So where's your solution?

Indy, were you a former accountant at Enron?  Annualized return of 12.9%?  If you only used the 100k at 12.9% that is $12,900 or $100 short of the $13,000 he ended with and that’s using 200k.  And you lost me on the average deposit, what did he invest in equities or mutual funds, or in your case a passbook savings account.  And if your clients accept those numbers they need their head examined…“flaws in the calculation” now that’s understatement.  Break out the HP why don’t you.

The reason that Indy may be very close is found in this thinking.

Any positive return earned in less than 1 year will result in a higher percentage if you annualize it.

Man it's scary to think that this many lightweights are in the biz.

[quote=Big Easy Flood]

The reason that Indy may be very close is found in this thinking.

Any positive return earned in less than 1 year will result in a higher percentage if you annualize it.

Man it's scary to think that this many lightweights are in the biz.

[/quote]

Will result in a LOWER percentage once you stretch it out over twelve months instead less than twelve.

It's late and I have to get a drink.

You're a f**king idiot Big Easy

So what do you know, I looked in my book and had a client invest a 100k on 6/1 on a stock pick he heard on CNBC.  Should have known it didn't do sh*t for seven months, but the guy on CNBC said it was going to be bought out so I bought another 100k on 1/1.  Lo and behold the stock is up 6.5% today on a buyout and the deal is going to close in two months.  Great, I'll call my client tomorrow and tell him he made 12.9% on his money.

you idiots!!! if it were a $13,000 gain in 12 months it would be 6.5% return. Remeber we don’t know when the additional 100k was added to the account so this is only an approximation. It’s as close as we can get withou knowing all the facts. Here it is based on what we know.  6.5% /12 is .54% per mth. .54% * 10 mths = 5.4% annualized. Are you all that dumb??? I’m beginning to think a whole lot less of you. Who doesn’t get this?

You f**king idiot EZ, he said the additional 100k was invested on 1/1.  The guy made the investments on 6/1 and 1/1.  Today is March 23 roughly 10 months.  He made 6.5% in 10 MONTHS NOT TWELVE.  When you project an annualized return, the return should be higher not lower.  It is a PROJECTION, we’re not done with the 12 months yet. 

And for you EZ here is a link cut and paste

cgi.money.cnn.com/tools/returnrate/returnrate.jsp

The principal is the same.  For simplicity, put 200,000 for example on 6/1/05 and put 213,000 on 3/23/06.  You will get a Return for the Entire Period of 6.5% and an ANNUALIZED RETURN of 8.08%.  Now you owe the board an apology.

[quote=VotedforKerry]Indy, were you a former accountant at Enron?  Annualized return of 12.9%?  If you only used the 100k at 12.9% that is $12,900 or $100 short of the $13,000 he ended with and that's using 200k.  And you lost me on the average deposit, what did he invest in equities or mutual funds, or in your case a passbook savings account.  And if your clients accept those numbers they need their head examined...."flaws in the calculation" now that's understatement.  Break out the HP why don't you.[/quote]

VFK, you have been victimized by fuzzy math.  I am a CPA, but did not work for either Enron or Arthur Andersen.  The point is that the $13,000 was made in less than twelve months, so logic tells most folks that if the account continued at the pace it was averaging, at the end of twelve months, it would certainly make more than $13,000.  The entire 200K was not in the account during the entire period, hence the average balance was considerably lower (and I believe, pretty doggone close to the number I stated).

I will allow that my calculation does not take into effect the exact balance each and every day of the calculaton period (those numbers are unknown to all of us), so it is only a rough estimate, but by the time this string plays out, I think my number will be closer to the truth than yours.  At the same time, it is only an estimate.  I may have confused folks earlier, as I use the performance reports issued by my statement producer (LPL) for clients and I believe that it would be better for Scrim's bank to purchase a performance reporting package, rather than rely on estimate calculations like the one I described above.  I've used the estimate calculation for my own personal use when the performance reports weren't in hand.

BTW, it's been awhile, but my math SAT was 710, so I'm OK with numbers...

[quote=Big Easy Flood]

The reason that Indy may be very close is found in this thinking.

Any positive return earned in less than 1 year will result in a higher percentage if you annualize it.

Man it's scary to think that this many lightweights are in the biz.

[quote=joedabrkr] [quote=Big Easy Flood]

Man it's scary to think that this many lightweights are in the biz.

[/quote]

Yes and thanks so much for gracing us with your profound wisdom.....!
[/quote]

Why in the world would you want to be considered a lightweight?

[quote=VotedforKerry]

You're a f**king idiot Big Easy

[/quote]

Let me see if I have this right.  You voted for Kery, yet I am the idiot?

MindyOne, a CPA?  Please don't do my taxes, by your calculations I still owe the IRS $173,938. 

And for BIG WEEZY, Kerry has two R's.

[quote=Indyone]

BTW, it’s been awhile, but my math SAT was 710, so I’m OK with numbers…

[quote=VotedforKerry]

MindyOne, a CPA?  Please don't do my taxes, by your calculations I still owe the IRS $173,938. 

And for BIG WEEZY, Kerry has two R's.[/quote]

The longer you post on this, the dumber you look.

Indyone, I stand corrected.

www.sironix.com/ratecalc.htm  Plug in the numbers and you get a simple return on investment of 6.5% and a 12.9% annual rate of return.

VFK, I respect you for admitting that.  I looked at the calculator and am bookmarking it for simple internal use calculations.  Thanks for sharing it.  Scrim, your bank should still look at purchasing performance reporting software, as the website can only take a maximum of four entries.  Regardless, I would want something in-house that I could control...never know when that website disappears or becomes a pay site...

You reap what you sow.  So I need to eat a bit of humble pie on this one.  In this case, I should eat the whole pie.

SCORE: INDYONE 1 VFK 0

I was also incorrect. That’s what I get for responding after 4-5 glasses of wine. My apologies.

[quote=ezmoney]I was also incorrect. That's what I get for responding after 4-5 glasses of wine. My apologies.[/quote]

A few glasses of wine makes you forget that a year has twelve months?

4-5 glasses of wine really impares my judgement. For example I should have never responded to this post without some real thought to the question.

BTW, a year in this biz feels like a heck of a lot more than 12 months.

[quote=ezmoney]I was also incorrect. That's what I get for responding after 4-5 glasses of wine. My apologies.[/quote]

Not a problem...we can all consider this a good learning experience.  I've been on the receiving end of a losing battle before on this board...and had to eat some pie myself...best thing that can happen to keep a person humble...just keep that wine thing for after hours, OK?

ezmoney:

I was also incorrect. That's what I get for responding after 4-5 glasses of wine. My apologies.

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Jeeeeeez! You're posting just after 2 PM and you've already had 4-5 glasses of wine! Where are you posting from, France?

Hey, uhhhhhhh, got any openings where you work?

My original post in which I made the dumb calculation was at around 8 pm. I’m not a lush for god sake!