Personal Finance & Money Asked by Clankk on August 30, 2021
I want to measure and evaluate the performance of my personal portfolio. However, I am concerned about confusion and miscalculation. Because when I calculate the time-weighted portfolio return rate in excel, I get different results from ready-made calculators on the internet(Sharesight). (0.91% my calculated / Sharesight calculated 0.95%) As of October 8, there was an inflow of money into the portfolio. More precisely, I increased the weight of a fund I had and bought more shares of it. I used the following formula for 8 October. {(end of day value – yesterday end of value – cash flow) / (yesterday end of value)} Other days i used a simple return formula. (End of day value / yesterday end of day value)-1
In this context, I have a few questions, which total return is more accurate mine or the calculator?
Is TWRR an accurate and standard method for calculating performance ratios such as the Sharpe ratio?
What method should I follow when I change portfolio weights and financial products in it? Is TWRR useful?
I will give all my portfolio and transactions works in the tables below. I will also give the prices of mutual funds. All prices and purchases were made at the end of the day. My entire portfolio consists of mutual funds and I have no cash at all.
I would like your help, support, and feedback on the subject.
Date | Portfolio Balance | Return Rate % |
---|---|---|
5/10/2020 | 9986.026848 | 0 |
6/10/2020 | 10030.912448 | 0.004495 |
7/10/2020 | 10034.489485 | -0.00036 |
8/10/2020 | 11023.35918 | -0.0011 |
9/10/2020 | 11027.999195 | 0.000421 |
12/10/2020 | 11090.413861 | 0.00566 |
Date | Fund Code | Quantity | Buy Price | Amount |
---|---|---|---|---|
5/10/2020 | AAA | 44801 | 0.066962 | 2999.96 |
5/10/2020 | BBB | 22622 | 0.044203 | 999.96 |
5/10/2020 | CCC | 43327 | 0.069240 | 2999.96 |
5/10/2020 | DDD | 1400 | 1.419414 | 1987.18 |
5/10/2020 | NNN | 955 | 1.046031 | 998.96 |
8/10/2020 | NNN | 930 | 1.075157 | 999.90 |
Date | Fund Code | Buy Price |
---|---|---|
5/10/2020 | AAA | 0.066962 |
5/10/2020 | BBB | 0.044203 |
5/10/2020 | CCC | 0.069240 |
5/10/2020 | DDD | 1.419414 |
5/10/2020 | NNN | 1.046031 |
6/10/2020 | AAA | 0,067018 |
6/10/2020 | BBB | 0,044929 |
6/10/2020 | CCC | 0,069376 |
6/10/2020 | DDD | 1,421754 |
6/10/2020 | NNN | 1,063608 |
7/10/2020 | AAA | 0,067019 |
7/10/2020 | BBB | 0,044514 |
7/10/2020 | CCC | 0,069414 |
7/10/2020 | DDD | 1,426568 |
7/10/2020 | NNN | 1,068356 |
8/10/2020 | AAA | 0,067054 |
8/10/2020 | BBB | 0,044213 |
8/10/2020 | CCC | 0,069385 |
8/10/2020 | DDD | 1,418694 |
8/10/2020 | NNN | 1,075157 |
9/10/2020 | AAA | 0,067077 |
9/10/2020 | BBB | 0,044218 |
9/10/2020 | CCC | 0,069466 |
9/10/2020 | DDD | 1,419914 |
9/10/2020 | NNN | 1,074244 |
12/10/2020 | AAA | 0,067113 |
12/10/2020 | BBB | 0,044629 |
12/10/2020 | CCC | 0,069725 |
12/10/2020 | DDD | 1,432386 |
12/10/2020 | NNN | 1,086351 |
I can't reconcile either calculation, but I can offer thoughts on how to measure return. Time-weighted return is useful for seeing how the underlying instruments performed regardless of when money came into or out of the portfolio. In other words, it removes biases from having more money invested in good times (and vice-versa). So if you want to see if you made good picks, then TWR is appropriate.
Money-weighted return is better for measuring the timing of your investments. If you strategically invested at a specific time to capture value, then money-weighted return is more appropriate.
Either is fine to use in a Sharpe ratio calculation, which is a comparative measure. It's pretty useless by itself, but is useful for comparing investments with different risks. In other words, Did you make good use of additional risk be increasing returns?
So if you're comparing your investments to, say, an index, then either is fine and tells you two different things - did you invest in the right thing (TWR) and did you invest at the right times (MWR).
Correct answer by D Stanley on August 30, 2021
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