We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Estimating pension pot - fund performance
Comments
-
Deleted_User wrote: »How is it calculated? By the provider? Is it money weighted or time weighted?
When people compare “returns” they are often comparing apples and oranges
8.6% is the Compounded Annual Growth Rate of my portfolio investments.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
CAGR = money weighted. A lot of people seem to use CAGR (not accounting for the ones who are doing it wrong, which is likely most). This is more reflective of the actual investor return but isn’t the measure which should be used to compare portfolio performance vs others or benchmarks. User Longinvest has strong views on this (if you visit boggle heads) but the difference isn’t all that much if your flows are small vs portfolio size.0
-
I use XIRR to account for my irregular inflows0
-
Deleted_User wrote: »CAGR = money weighted. A lot of people seem to use CAGR (not accounting for the ones who are doing it wrong, which is likely most). This is more reflective of the actual investor return but isn’t the measure which should be used to compare portfolio performance vs others or benchmarks. User Longinvest has strong views on this (if you visit boggle heads) but the difference isn’t all that much if your flows are small vs portfolio size.
CAGR is a good number to use for portfolio comparisons and then with some standard deviation can form the basis of a retirement projection that folds in cash inflows while working and outflows while in retirement.
A milestone that's great to reach is when investment return becomes a bigger factor in the portfolio than contributions and maybe even withdrawals. That's financial freedom as you can stop worrying about the money and things become self sustaining.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
CAGR is a good number to use for portfolio comparisons
Not really as it reflects investor behaviour and timing of contributions and withdrawals rather than how good his portfolio really is.
Someone who got his DB pension commuted in 2009 did great even if he screwed up by putting it all into an underperforming fund, particularly when compared to someone who made regular contributions to the same fund. If you compare their TWRs over the same period, both investors would show the same return.
TWR is the right measure for portfolio comparisons but MWR/CAGR is what lets you buy a REALLY nice nursing home to die in. Comparing CAGRs is just boasting, not that there is anything wrong with it.
Calculating CAGR is easy (XIRR/IRR function).
Bogleheads have a neat spreadsheet for TWR calcs. https://www.bogleheads.org/wiki/Calculating_personal_returns0 -
Deleted_User wrote: »Not really as it reflects investor behaviour and timing of contributions and withdrawals rather than how good his portfolio really is.
The return ie (CAGR) I'm using is the annual return that is consistent with the capital gains and reinvested dividends of my portfolio over the 32 years I've been investing, It does not include any contributions or withdrawals. ie $10k invested in 1987 will have grown to $10k*(1.086^32) = $140k.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
bostonerimus wrote: »The return ie (CAGR) I'm using is the annual return that is consistent with the capital gains and reinvested dividends of my portfolio over the 32 years I've been investing, It does not include any contributions or withdrawals. ie $10k invested in 1987 will have grown to $10k*(1.086^32) = $140k.
...but wouldn’t there have been contributions and withdrawals impacting the final value? Normally CAGR is a simplified approach which works only with a one off investment, in which case it is equivalent to XIRR, so I assumed you actually meant XIRR but was obviously wrong.. How do you calculate CAGR for your investments?0 -
Deleted_User wrote: »...but wouldn’t there have been contributions and withdrawals impacting the final value? Normally CAGR is a simplified approach which works only with a one off investment, in which case it is equivalent to XIRR, so I assumed you actually meant XIRR but was obviously wrong.. How do you calculate CAGR for your investments?
This is why I can't really give a CAGR based answer - I simply don't have the stats available for the entire duration. I couldn't for example tell you what gains I made across 3 different providers during 2002. Made more complicated by the fact the providers didn't report on full calendar years but on a date based on first investment.
The only thing I know is my history of contributions from bank statements - and what I have today. XIRR can give me a result but is otherwise limited in usefulness when comparing to others, except for the fact that my investment history is very likely like many others who use a SIPP, regular monthly contributions. Those using ISAs I feel tend to do more lump sum0 -
This is why I can't really give a CAGR based answer - I simply don't have the stats available for the entire duration. I couldn't for example tell you what gains I made across 3 different providers during 2002. Made more complicated by the fact the providers didn't report on full calendar years but on a date based on first investment.
The only thing I know is my history of contributions from bank statements - and what I have today. XIRR can give me a result but is otherwise limited in usefulness when comparing to others, except for the fact that my investment history is very likely like many others who use a SIPP, regular monthly contributions. Those using ISAs I feel tend to do more lump sum
Right. To derive time weighted returns one needs to have the history of portfolio total values over the duration. To derive XIRR/money weighted returns one needs the up front and final values and contributions.
CAGR only really makes sense if you make a one off lump sum investment and that’s it; at least that’s my understanding
Having constant influx does not make XIRRs directly comparable because people start at different times in the cycle. If the starting point is the same then you can compare. Also, if the value of contributions is insignificant vs portfolio value over a given time period then XIRR is very close to TWR.0 -
Deleted_User wrote: »...but wouldn’t there have been contributions and withdrawals impacting the final value? Normally CAGR is a simplified approach which works only with a one off investment, in which case it is equivalent to XIRR, so I assumed you actually meant XIRR but was obviously wrong.. How do you calculate CAGR for your investments?
I have had a pretty simple and portfolio, I can look back at my portfolio with Vanguard to 1993 and before that with TIAA-CREF and come up with a CAGR value“So we beat on, boats against the current, borne back ceaselessly into the past.”0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 352.3K Banking & Borrowing
- 253.6K Reduce Debt & Boost Income
- 454.3K Spending & Discounts
- 245.3K Work, Benefits & Business
- 601.1K Mortgages, Homes & Bills
- 177.6K Life & Family
- 259.2K Travel & Transport
- 1.5M Hobbies & Leisure
- 16K Discuss & Feedback
- 37.7K Read-Only Boards