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PWL 2013 Rate of Return Calculator

January 23, 2013 - 10 comments

After releasing the PWL 2012 Rate of Return Calculator late last year, my email was flooded with requests for an updated calculator for 2013, so here it is. The PWL 2013 Rate of Return Calculator can also be used for any non-leap-year – feel free to use it for 2011, 2010 and 2009 calendar years (the 2012 calculator can be used for leap-years).

How do I calculate an annualized return?

An annualized return is really just a sexier way to say “average return” – annualized returns are the type of returns frequently quoted in the media:

In order to calculate your annualized return over 3 or 5 year periods, you will need to first calculate your annual calendar year returns for all of the years in question (using our online calculators).  Once you have done this, you will need to “chain-link” the annual returns, using the equations below (Microsoft Excel may be useful for this exercise):

 

 

Once you have calculated your annualized return, bring the information to your advisor – they should be able to provide you with a custom benchmark portfolio return in which to compare to.  If they are reluctant (or unable) to provide you with this information, find a new advisor.

By: Justin Bender with 10 comments.
Comments
  21/05/2013 9:06:46 AM
Justin Bender
@Kevin - Arithmetic "average" return is the simple average return you speak of. Geometric "average" return is also known as the "annualized return". Both are considered "average" returns.
 
  21/05/2013 9:02:37 AM
Justin Bender
@Kevin - feel free to use the same calculator for all years if that is your preference.
 
  17/05/2013 3:51:26 PM
Kevin
Annualized return the same as "average return"? Isn't "average return" simple adding 3 or 5 years of annual return numbers together, and then dividing by 3 or 5 respectively? This is the true "average return" for the last 3 or 5 years. Average return is not a useful number. Now what we really want, and what fund tables list, is the Compound Average Return" or CAR. Totally different than average returns. Then there is also "median returns", but we won't get into that now. :-)
 
  17/05/2013 3:46:03 PM
Kevin
Why calculate leap years separate from non leap years? Aren't annual returns in leap years the same information as annual returns in non leap years? When comparing funds or investments, we compare yearly/annual returns to each other. A one day difference in leap years is of little value? As long as we are comparing the same year of a fund to the same year of another competing fund.
 
  25/02/2013 12:48:49 PM
Gordon
I understand your reasoning Justin. Thank you for the spread sheet. It is very helpful.

Gordon
 
  25/02/2013 10:05:59 AM
Justin Bender
@Gordon - unfortunately I cannot unlock the spreadsheet - I am concerned that investors will "tinker" with the underlying equations. I will be posting a new spreadsheet each year, which will be available for download on our website. The only difference between the 2012 and 2013 spreadsheets is that 2012 contains one extra day (for the leap year).

All the best,

JB
 
  24/02/2013 5:18:54 PM
Gordan
Hi Justin,
Spreadsheet is password protected. Is it possible to get password for both 2012 and 2013 spreadsheet? Without that I am not sure how to use the spread sheets as far as adapting it for required number of trading accounts (need to copy columns) and to be able to change year.

Thank you kindly,
Gordan
 
  14/02/2013 12:55:29 PM
Philippe V.
Thank you for your Answer Justin, the calculator and your article were very helpful.
 
  13/02/2013 11:13:14 PM
Justin Bender
@Philippe V. - If you're interested in a money-weighted return calculator, check out Weigh House Investor Service's online calculator: http://www.weighhouse.com/resources/portfolio_return.aspx
Also feel free to read an article I wrote on the differences between various methods of calculating your rate of return: https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/Justin%20Bender%20Assets/How-to-Calculate-your-Portfolio-s-Rate-of-Return_v03linked.pdf
 
  13/02/2013 1:17:16 PM
Philippe V.
This return is also known as the time-weighted return, I believe. How about using the money-weighted return (XIRR function in Excel), to evaluate how well an investor has done. I have read elsewhere that the money-weighted return is a better representation of how an investor is doing with his investments.
 



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