LATEST SPREADSHEET CORNER ARTICLE:
Calculating a Portfolio’s Internal Rate of Return
January 20, 2018
This article makes use of CI’s Portfolio Tracker on Google Sheets. To access this spreadsheet, click here. You will need to make a copy of the spreadsheet for your own use. Click File and choose “Make a copy,” then determine what to name the file and where to save it on your Google Drive. Do not send a “request for edit access” using the View button. For more information on setting up the CI Portfolio Tracker, read CI’s original article on using Google Sheets and the update to that article published in 2017.
Every investor wants to succeed, and every investor needs to know how they are progressing toward their definition of success. Regardless of individual strategy, tracking portfolio performance is one of the tools to measuring success. It’s important to know how realistic your investment goals are compared to your portfolio’s actual performance.
There are many ways to calculate overall portfolio performance, and, on top of that, many different names for similar-looking calculations. This article will deal with finding a portfolio’s realized rate of return, measured by the internal rate of return (IRR) calculation.
The IRR is your personal return and is commonly referred to as the “dollar-weighted return” or “money-weighted return.” It will differ from an exchange-traded fund (ETF) or mutual fund’s return listed on their website. IRR differs from time-weighted rates of return (TWRR) in that it accounts for investors’ behavior by taking into account the impact of flows (withdrawals and deposits) on performance. Its accuracy comes from its ability to track compounding value over time—each change in the value of the portfolio is accounted for.
This demo of Google Sheets uses the Google Finance function to automatically pull data into a simple fund watchlist.