Portfolio performance - Best way to work it out?

utigers

Hi there,

Just wondering the best way to work out portfolio performance in percentage terms. Its obviously dead easy with no new money going in or out, but this year I've had a bit of both and made a few fund alterations.

Ideally I just look at yearly performance.

I thinking of total £ at the beginning of the year minus/plus any new money in this period giving 2 totals. The only thing is if this new money increases or decreases in value you end up factoring that in.

gadgetmind

What you're needing to calculate is your "Internal Rate of Return" or IRR. This is easy with regular inputs but much harder with variable ones.

nxdmsandkaskdjaqd

I use the XIRR function within Excel. It works very well. It can be difficult to set-up if you follow the Help file within in Excel, so if you need a worked example drop me a PM.

grey_gym_sock

IRR may not be the full answer.

it tells you the return on the money you have invested. if you've left the same money invested during the period, i.e. when you've sold anything then you've reinvested the proceeds immediately, then that's all you need to know. but if you've added new money to your investments, or taken money out, or both at different times, then it doesn't tell you whether your timing has helped or hindered performance.

if you apply IRR to not just investments, but investments plus cash available for investment, then it would give you the full answer. but it can be a bit fuzzy which cash is available for investment and which cash isn't because you're about to spend it or are keeping it for possible emergency spending.