Tracking portfolio returns

LHW99

dales1 said:

My own spreadsheet uses both methods - IRR and unitisation .... and accordingly I can compare the results.

Myself, I prefer the IRR approach - because IRR tells me what return my actual funds from time to time, have earned in real life.

As Bowlhead99 said in the link above :-

"So generally IRR can be preferred because it tells you what you made on an annualised basis including the effects of how much you chose to put in when. But unitizing it and creating a virtual 'investment fund' and fund units, allows you to map out how your portfolio mix did against other fund products without regard to when you were heavily invested or uninvested in your portfolio".

Furthermore, as BH said, "unitisation will track what happened to the first unit of money invested" ... and people should be aware that that first unit is all it will track.

So I think that unitisation does give me a good measure of my returns, simply based on my choices of what products were best to invest in from time to time.

But what unitisation leaves out of the calculation ... is any measure of whether I happened to add (or to withdraw) funds at an opportune time to enhance my returns.

So I feel that unitisation doesn't reflect all of the choices / decisions that were actually made in real life, in my portfolio, and which also had material effects on my rate of return.

Accordingly I prefer IRR (for my own purposes). Others can take their preference !

Dales.

Hence the problem with statistics of all sorts, you need to know what is being measured, how its being measured and what assumptions are made in the calculations. All the answers are "right" but may not necessarily answer the question originally asked.

Audaxer

If you are adding money and/or withdrawing money from a portfolio throughout the year, I think using the XIRR function in Excel is the most accurate method of calculating the true return.

george4064

Really interesting thread here. I have always used the unitisation method and never really bothered with trying the XIRR function, however I have plugged my numbers into XIRR function and it returns -0.06% for my portfolio since its inception (April 2019) whilst unitisation calcs give a return of -3.49% for the same period. I guess that suggests that the timings of any additions of new money to the portfolio have been improved the return figure in XIRR vs unitisation.

Reg_Smeeton

Audaxer said:

If you are adding money and/or withdrawing money from a portfolio throughout the year, I think using the XIRR function in Excel is the most accurate method of calculating the true return.

I’m using Apple numbers which doesn’t support the XIRR function apparently. If I am taking a snapshot of my portfolio monthly (valuation on a given day + any external flows that happened within the month) would you consider this accurate enough using IRR?

Prism

Excel (web version) and Google Sheets are both free to use.

kinger101

Open Office does XIRR too.

Reg_Smeeton

Prism said:

Excel (web version) and Google Sheets are both free to use.

Every day is clearly still a school day! Many thanks