Keeping track of gains with cost averaging

Wassa123

Hello,

I am looking into investing with regular savings, I'm on HL if that matters.

Say I put £100 into a fund that is now up 5%. My gain was 5%.

I then put another £100 in, and my "gain" dropped to 2.5% to take into account the new money (5% on original £100, 0% on next £100 to make 2.5%)

If I do this regularly, won't the gain number be continually warped by the new money coming in? I know over time the new money will be smaller in comparison to the amount in there and this effect will diminish.

Do you compare funds by looking at your personal gain % or by the fund statistics gain %?

Eco_Miser

This may help: http://monevator.com/how-to-unitize-your-portfolio/

Mostly I look at the fund price, but that ignores dividends.

TheShape

HL will do these calculations for you showing total gain/loss and daily gain/loss on different funds in your portfolio and overall.

You can also use a spreadsheet with (I think) IRR or XIRR functions that give total gain/loss and annualised gain loss. I downloaded mine from a link either on this forum or the p2p independent forum.

Audaxer

TheShape wrote: »

HL will do these calculations for you showing total gain/loss and daily gain/loss on different funds in your portfolio and overall.

I think most platforms show total gain/loss and daily gain/loss, but not sure if they calculate proper gain percentages taking account of money added and withdrawn?

I'll need to have a close look at that unitize your portfolio page that Eco Miser posted above to see how that works.

msallen

Hmm, that unitizing blog post on monevator is interesting, but as it states it is only one way of measuring performance.

Personally I'm happy enough with the XIRR as it tells me the actual rate of return I have got on my investment (as opposed to how my portfolio compares to some index or other)

e.g. Using this unitization calculation, if my portfolio had started from empty 10 years ago, with various amounts being added ad hoc over the intervening period, then a great outperformance against the index in the first year would be fairly insignificant whilst a slight underperformance this last year (when I have much more money invested) would have a more detrimental effect than unitization might imply. It would even be possible to have smashed the index over the period but have lost money.

I just record deposits/withdrawals along with their dates and let Excel XIRR() do the rest. That gives me the return gained from the actual amounts I have invested whether on day one or last week.

JohnRo

Wassa123 wrote: »

If I do this regularly, won't the gain number be continually warped by the new money coming in?

diluted is the word I'd use.

Wassa123 wrote: »

Do you compare funds by looking at your personal gain % or by the fund statistics gain %?

Unitisation gives a view of how well each of the underlying funds are doing and/or the whole. It removes the dilution effect of new money going in.

Audaxer

msallen wrote: »

e.g. Using this unitization calculation, if my portfolio had started from empty 10 years ago, with various amounts being added ad hoc over the intervening period, then a great outperformance against the index in the first year would be fairly insignificant whilst a slight underperformance this last year (when I have much more money invested) would have a more detrimental effect than unitization might imply. It would even be possible to have smashed the index over the period but have lost money.

I don't really understand that, as from a brief look at the unitization page it gives a true indication of returns. I assume it is used, or can be used to work out annual returns, so if you invested various lump sums at different dates during the year, it will calculate your true annual percentage gain/loss rather than just the difference between the total invested and the current value?

JohnRo

Unitisation is a method of measuring the underlying asset(s) performance.

It's not measuring individual portfolio performance, nor is it trying to, which is affected by all manner of activity, new money in, sales, fees, withdrawals etc.

The two can be almost identical, with no buying or selling, but never the same if platform fees are levied.

Fatbritabroad

Am I wrong that I've just added up my isa contribution I paid in over the last few years and subtracted it from the total in there?

LHW99

I think you can account for buying / selling fees etc when unitising by calculting the number of effective "portfolio units" bought or sold at the time the changes happen, and using the new number of units to derive the unit price going forward.

Alexland

Fatbritabroad wrote: »

Am I wrong that I've just added up my isa contribution I paid in over the last few years and subtracted it from the total in there?

That's the same as I do as my investments are mostly wrapped so I don't really worry about the source of the gains or losses or exactly when they occured. I can't change the past. If I really want to understand performance over time I look at the fund datasheet.