It's a legitimate question because the more I get into this, the more confused I become. My broker shows me a percentage gain, but I have no idea if that is accounting for the timing of my deposits, dividends being reinvested, or how I am really doing compared to just throwing everything into an index fund and forgetting about it.
I’ve spoken to a few people in my circle that are investors, and most of them just look at the total value going up and call it a day. which I understand, but it doesn't really tell you if you're making smart decisions or just riding a bull market.
Is there a proper way to measure this performance that normal people, without a finance background, can actually understand and use? what are the real metrics you look at to see if your portfolio is doing well or not
Do you really know what your actual investment returns are?
byu/PeakAccomplished2431 inpersonalfinance
Posted by PeakAccomplished2431
2 Comments
> I have no idea if that is accounting for the timing of my deposits, dividends being reinvested
Just ask your broker.
> or how I am really doing compared to just throwing everything into an index fund and forgetting about it.
Since data has shown time and time again that broad market index passive approach > anything else, probably pretty reasonable assumption that you’re doing worse over the long term.
Your confusion is valid there are two ways to measure investment returns, and they tell you very different things.
Your broker’s number is usually a **money-weighted return**. It reflects how your actual money performed, but it’s influenced by when you deposited not just which investments you chose. That makes it hard to compare yourself to a benchmark.
**Time-weighted return** is what professional fund managers use. It strips out the effect of deposits and withdrawals and tells you: how did this portfolio perform as a strategy? This is the number you want when comparing yourself to an index fund.
The honest benchmark question “am I beating a simple all-world index fund?” is the one most people avoid calculating. When they do, they usually discover two things: first, the market did most of the heavy lifting, and second, their stock-picking or timing added little to nothing on top of it. That’s not a personal failure, it’s just what the data consistently shows.
A quick search for “time-weighted return calculator” will get you there in a few clicks.