UnThreaded | Threaded | Whole Thread (14) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: TMFSandman Big red star, 1000 posts Feste Award Nominee! Old School Fool Coverage Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2534  
Subject: Re: Monitor Investment Performance Date: 1/3/2011 1:38 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
CABob is right as usual.

The net new cash added is any new cash you add into the portfolio. So that would be money you add in from paychecks, gifts, etc. and would also include any money you take out, although any money you take out would be a negative number instead of a positive number.

What you would not include in net new cash is any money you make from interest and dividends, since these are returns on your investments.

If you start the period with $9,000, add $1,000 of new cash, and end the period with $10,000, your investment return is 0%. All of the increase is due to the new cash you added in. Give it a try on the spreadsheet.

The important thing is to really know what you're measuring and why you're measuring it. If you have a portfolio of $1 million and you're only adding in $1,000 dollars each month then it won't matter too much if you don't factor in the cash you add to the total returns (although even here you'd be off by 1.2%).

However, if you have a portfolio of $10,000 and you are adding in $1,000 each month, the portfolio will more than double in size even if the stocks you pick go nowhere. The stocks you pick could go down 50% and you could still show a healthy positive percentage return of 70%. So when the amounts being added in (and/or withdrawn) are large numbers with respect to how big your portfolio already is, it's important to take that money into account when calculating your returns. Otherwise you won't be able to fairly compare your returns against your favorite index's or mutual fund's return.

That's not to say that you have to do this, but if you really want to know how you're doing compared to an index, this is the way to do it.


Mike
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (14) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Value Hounds

Clorox Isn't Cleaning Up
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement