How to work out return on pension?

slopemaster

I've got some money in a Legal & Gen stakeholder pension, in various different funds. I get a letter each year telling me how much it's worth.

I'd like to work out what the average return has been, but I can't get my head around how to do this. If I'd just put a lump sum in and left it, it would be easy. If I'd paid in regularly, there would probably be a formula or a piece of software to tell me. But as it is, I've just put random sums in as and when I've had them, over about 15 years. So how on earth do I work it out? (Or make a reasonable estimate)?

The only thing I could come up with was this:
Find out the different amounts I've paid in and dates
Express each amount as a % of the total
Multiply each % by the number of years that amount has been in for
Add them up
This will give me a weighted avarage number of years my money's been in, so I can then divide the total growth by this number of years...

er...? but this doesn't allow for effect of compounding?

My head hurts, please can anyone tell me how to do this?

Sobraon

The internal rate of return (IRR) function calculates the "annualised effective compounded return rate".

When the IRR for a schedule of cash flows that is not necessarily periodic is needed then the XIRR function can be used.

To use XIRR see http://www.financialwisdomforum.org/gummy-stuff/xirr.htm for examples.

(I use the LibreOffice Calc spreadsheet for this as I don't have excel with the Analysis Pack.)

webnibbler

Can't help you on the sums as maths isn't my strong point.

But I would save yourself the bother and use one of the free portfolio tools online which are very useful for keeping track. I like the Morningstar portfolio, but there's also Trustnet. It's fairly straightforward to create a free account which gives you up to three free portfolios on Morningstar. Then it's a simple case of entering all the transactions, although this can take some time if it's over a long time period.

Once complete it will give you all the performance stats, including the annualized return.

There's a useful post over at Monevator on using Morningstar's portfolios to track performance - http://monevator.com/portfolio-tracking-easy/

mgdavid

you cannot change the past, it is what it is. What is your objective once you have the answer, as there may be a different way of reaching the objective.

slopemaster

Well, I want to compare the return on the pension with the return I could get on other investments (property...)
And whilst I know "past performance is no guide", what else can I go on?