Vanguard Personal Growth Rate

sendu

lindabea wrote: »

Don't know what you mean by 'Vanguard's number' If you mean the percentages- the answer is NO. Vanguard say growth is 16.6% and XIRR formala comes out as 9.84%. Quite a variation for something that should be closer. I can't speak to Vanguard as it's not my investment.

I was suggesting you use the IRR formula in Excel instead of the XIRR formula to see if that came out to 16.6%.

bowlhead99

sendu wrote: »

I was suggesting you use the IRR formula in Excel instead of the XIRR formula to see if that came out to 16.6%.

But to get an annualised result using the IRR formula you would need for your cashflow and valuation data to be at one year intervals (or for shorter periods, perhaps use one month intervals and extrapolate it)

Whereas a 'personal' growth rate is going to have to look at the specific dates on which the contributions, distributions and closing balance happened, which is what XIRR is designed to handle.


Could it be perhaps that you are looking at the overall returns in and out of the vanguard account while vanguard are looking just at the current investment(s) within the account(s). Or vice versa.

i.e., you say you've taken "the relevant figures" but what are the relevant figures in the vanguard reported data. Given it's not your data, perhaps you don't have the relevant set of figures for the calc they are trying to do. Seems like it is a something you could ask them to clarify by email if it were your account. I couldn't see an easily-Googleable definitions page for the vanguardinvestor site for "personal growth rate"

Alexland

When you move your mouse over the Vanguard Investor Personal Return it says "We use the money weighted rate of return method to calculate your % Personal return". On our accounts it seems to be almost identical to the difference between total contributions and current valuation.

lindabea

Alexland wrote: »

When you move your mouse over the Vanguard Investor Personal Return it says "We use the money weighted rate of return method to calculate your % Personal return". On our accounts it seems to be almost identical to the difference between total contributions and current valuation.

OK - now I think I'm getting a bit out of my depth!! How is the 'weighted rate of return method' (that Vanguard use) different to the way XIRR calculated the rate of return. That's what I'd like to understand, as I think Vanguard are showing an over optimistic rate of return in their calculation. I thought the rate of return on an investment is a percentage calculated by taking the amount invested over the period of time - which is what I believe XIRR does.

lindabea

Just an update on this thread. Since my last post, my brother (who owns the investment) put the same question to Vanguard. The following is their reply:

Thanks for your message and I hope you are well.

I am unsure exactly what calculations are made within your excel spreadsheet however I can comment on how your Vanguard IRR is calculated. I can confirm we do use the money weighted return formula.

The Internal Rate of Return (IRR) method, which is a pound-weighted return. IRR takes into account new money coming into your investment, as well as how long that money has been held.

We are aware that there are discrepancies with the way IRR is calculated and our technical department is investigated alternative methods for calculating returns.

I take it therefore, that the 'personal rate of return' they show on the front page of their website, is not reliable. In my opinion, it is over exagerated. Although it's nice to see a company who can accept that they have a problem and that they are working to find a solution.