14 Aug How MyRoboAdviser™ Calculates Your Performance Returns
How MyRoboAdviser™ Calculates Your Performance Return:
What is a Time-Weighted Return?
Time-weighted rate of return is a measure of the compound rate of growth of a portfolio. It is often the preferred measure of a portfolio’s return over dollar-weighted return, because it eliminates the distorting effects on the rate of return caused by money inflows/outflows.
The time-weighted rate of return allows for a fair assessment of the portfolio and allows for easy comparison between two investment portfolios. A time weighted rate of return can also be thought of as the simple return of the first deposit into the investment account.
Why Do I Have A Positive Rate of Return, but Negative Earnings?
It is possible to have a positive percentage rate of return and a negative overall dollar return since we calculate portfolio returns as a time-weighted rate of return, and conversely a negative percentage rate of return and positive earnings. It simply depends on when the inflows and outflows occur.
Example of a Positive Time-Weighted Rate of Return and Negative Earnings:
Suppose you invest $100 into an investment account and in the first year the portfolio gains 100%. At the end of year 1 you have $200 in your investment account. Consider you then deposit $10,000 into the investment account and the portfolio loses 10% in year 2. You would have $9,180 at the end of year 2 with a positive time-weighted rate of return of 80% and negative earnings of $920.
Other Rates of Return You May See in Your Account:
Simple Earnings Rate of Return:
The percentage return that you see as your Total Simple Earnings rate of return simply reflects how much your portfolio has grown. The simple earnings percentage takes how much you’ve earned and divides it by how much you have invested. The Simple Earnings Rate of Return should not be used to compare portfolios unless the two portfolios had the exact same cash inflows and outflows.
Annualized Simple Earnings Rate of Return:
When you log into your account, click the performance tab on the menu-bar, then click on “$ value performance”, you will then be able to see “Annualized Simple Earnings Rate of Return” below the “Total Simple Earnings Percentage”, which will tell you how much, on average your account has returned each year in terms of simple earnings. Please note this will only appear if the account has been invested for more than one year.
How to calculate: Annualized Earnings = [(1 + Earnings percentage)^ 1/years invested)]-1.
MyRoboAdviser™ has partnered with Betterment For Advisors as our technology partner & Custodian. Betterment calculates the returns for MyRoboAdviser™ accounts.
If you have any questions about holdings in your account or one of our models, or perhaps have another question about our services, you can contact us directly at 920.785.6012 or email us at firstname.lastname@example.org. My Robo Adviser™ has partnered with Betterment for Advisors as our technology solution to provide our services to our clients. Betterment maintains a support line you can also call for help with navigation, linking your accounts or other site functionality. You can call the Betterment for Advisors support line at 800.400.1571.
Last updated, August 14, 2018
Disclosures: Content is for informational purposes only and is not intended as personalized financial planning, legal or tax advice. Content is subject to change without notice. MyRoboAdviser.com provides investment recommendations based on a goals-based platform. Investments are not guaranteed, not bank insured, and may lose money. Investment Advisory Services provided to clients of My Robo Adviser™ by ETF Model Solutions, LLC, an SEC registered investment Adviser (registration does not imply any particular skill or training). Sub advisory services provided to clients of My Robo Adviser™ by Betterment, LLC, an SEC registered investment advisor. Brokerage services provided to clients of My Robo Adviser™ by Betterment Securities, an SEC registered broker-dealer and member FINRA/SIPC. Certain content on the Betterment, LLC website, including projected returns and tax-coordinated portfolios, may not apply to MyRoboAdviser.com’s investment recommendations. Clients must agree to provide and maintain accurate and current information with respect to their goals and financial circumstances. MyRoboAdviser.com does not provide financial planning or tax advice. Past performance is no guarantee of future results.