I love portfolio performance but I am having troubles trying to calculate a simple MWR using the “performance calculation” tab. Let me explain with an example:
Imagine T = 0, balance in my account is 0 dollars. Then I deposit 10000 dollars which are used to buy asset X. This operation will show as “deposit” = 10000 so “performance neutral transfers” = 10000. From this point, the asset X appreciates up to 50000. If I want to calculate the performance it is very simple: 50000 8actual value)/10000 (money invested) = 500%. At this point I decide to sell 30000, so “removal” will show 30000 and the “performance neutral transfer” sill show 10000 - 30000 = -20000. But now, how do I calculate the performance? since it is a negative number I cannot use it as the “money invested”. Imagine this in a portfolio where you have various assets and you cannot waste time going over one by one to check the money invested in each one.
This is all to show that I thought that “performance neutral transfer” showed money invested but when you do a “removal” it uses as the value the total value of the asset and not only “the money invested” so I don’t know how to properly calculate the MWR.
Could you please help me?
thank you very much
It should be the performance that accounts for deposits and removals. For instance if you start the year with 50k, deposit 20k, and end up with 100k, your Money weighted return should be: 100/ (50+20) -1 = 42,85%. With only deposits is “easy” but when you also include removals it gets tricky because using the example before, if you start the year with 0, midyear you deposit 20k, it gets appreciated 100K and you end up selling 50k leaving in your portfolio 50k it will result: 50 / (0+20-50) = 50 / (-30) which does not makes sense and that is the root of my problem…
To be clear, I just want to do an easy performance calculation: actual money / money invested in the period.
By looking at the calculation widget, I see “neutral transfers” and I used that as “money invested in the period” but using the example mentioned before (initial value = 0 and removals > deposits) it does not work. And my question is how to calculate a simple performance metric.
Could be possible to add the differentiation between Deposits and removals in the calculation widget? instead of just showing “neutral transfers”
Well, you have found out why it is not that easy.
You could have a look at the modified Dietz method, it is a relatively simple (suitable for calculation by hand) method of determining a money-weighted performance.
You can see it split in the full performance calculation, but not in the widget.
And could be aggregated as a widget?
Thank you very much
I’d say unlikely; compactness is important for a widget. E.g., the forex cash P/L is only split by currency in the full performance calculation view, too.
Bringing back this topic, would it be possible in a future update to include the modified dietz method in portfolio performance (as it already does with TWR)?
Interactive brokers for instance, provides both metrics and it would be very useful to have them calculated also in portfolio performance.
Thank you very much