Vanguard Rate of Return calculation
Vanguard Rate of Return calculation
Math isn’t my expertise but this doesn’t make sense to me.
I own VFIAX shares. Got in March 2020 with 100k. Overall I added a total of 42k over some time for a total of 142k.
My current ending balance is 235k.
What I don’t understand is that Vanguard Personal performance says 42.6% return and 42% 1 year return.
Shouldn’t the return be closer to 65%?
I own VFIAX shares. Got in March 2020 with 100k. Overall I added a total of 42k over some time for a total of 142k.
My current ending balance is 235k.
What I don’t understand is that Vanguard Personal performance says 42.6% return and 42% 1 year return.
Shouldn’t the return be closer to 65%?
Last edited by GuitarXM on Sat Nov 27, 2021 9:00 pm, edited 1 time in total.
Re: Vanguard Rate of Return calculation
Looks like you are doing 235 / 142, but that would be the return from March 2020, which was 19 months ago, not YTD or 1 year ago. Those figures would be based on the balance at those times.
Re: Vanguard Rate of Return calculation
I apologize it’s not YTD. It’s the return from March 2020 until today.
It says “1 year” is 42% and “All” is 42.6%
It says “1 year” is 42% and “All” is 42.6%
Re: Vanguard Rate of Return calculation
That 42.6% figure is very likely stated as annualized return, not total cumulative return.
Then you get into issues about the timing of your purchases.
For example 1.426**(19/12) == 1.754 ~= 75% which is higher than your 65% because some of your purchases were at later times.
You will need to look at exactly what that Vanguard page is saying about how it did the calculation and how recent the data is, but probably they are doing money weighted annualized return calculations.
Then you get into issues about the timing of your purchases.
For example 1.426**(19/12) == 1.754 ~= 75% which is higher than your 65% because some of your purchases were at later times.
You will need to look at exactly what that Vanguard page is saying about how it did the calculation and how recent the data is, but probably they are doing money weighted annualized return calculations.
Last edited by 000 on Sat Nov 27, 2021 9:22 pm, edited 1 time in total.
Re: Vanguard Rate of Return calculation
They say it’s money weighted rate of return.
Re: Vanguard Rate of Return calculation
Sorry, that's what I meant.
The figure Vanguard is giving you is both annualized not cumulative and it also is reflective of your varying contribution times to your holding.
This article describes some of the math they are doing.
The purpose of the MWRR calculation is to be able to compare it to an alternative investment, like the annual yield on a CD.
The figure Vanguard is giving you is both annualized not cumulative and it also is reflective of your varying contribution times to your holding.
This article describes some of the math they are doing.
The purpose of the MWRR calculation is to be able to compare it to an alternative investment, like the annual yield on a CD.
Re: Vanguard Rate of Return calculation
Their 1 year return seems correct but the “all” I assume to be cumulative. I think that’s where the confusion is.
I looked at the IRR math. Even with the timing the cumulative return shouldn’t be 42.6%
I looked at the IRR math. Even with the timing the cumulative return shouldn’t be 42.6%
Re: Vanguard Rate of Return calculation
It almost certainly is an annualized number if I am thinking of the correct screen on Vanguard's site.
Using the article I linked above you could verify their number is correct by plugging the values in, using their figure for IRR.
Re: Vanguard Rate of Return calculation
Yes, numbers for personal return are usually annualized IRR. If the investment has been held for less than one year they might not compute a return.
Maybe you can duplicate results using XIRR in Excel.
Maybe you can duplicate results using XIRR in Excel.
Re: Vanguard Rate of Return calculation
That’s a good idea. I’ll try that.
That’s brilliant as I can also track my returns manually to double check the brokers calculation.
This is important for me because I’m planning to do what I’m sure most will disagree with in this forum.
50% SP500
50% My own stock picks
Would like to track performance and see if I’m capable of beating SP500 long term. It’s actually very difficult to accomplish if it’s even possible from a noob investor.
Seems that Personal Capital and Mint do not track the returns well enough. I’m going to have to buy fractional shares so I can get a money weighted return comparison.
SP500 has served me very well. John Bogles reasoning with indexing is sound and the math behind it logically proves why its the safest investment when adjusting for risk.
But 10%/year isn’t going to change my life. I need more risk. I don’t have any debt and everything is paid off including my house so I can be stupid and take more risk
That’s brilliant as I can also track my returns manually to double check the brokers calculation.
This is important for me because I’m planning to do what I’m sure most will disagree with in this forum.
50% SP500
50% My own stock picks
Would like to track performance and see if I’m capable of beating SP500 long term. It’s actually very difficult to accomplish if it’s even possible from a noob investor.
Seems that Personal Capital and Mint do not track the returns well enough. I’m going to have to buy fractional shares so I can get a money weighted return comparison.
SP500 has served me very well. John Bogles reasoning with indexing is sound and the math behind it logically proves why its the safest investment when adjusting for risk.
But 10%/year isn’t going to change my life. I need more risk. I don’t have any debt and everything is paid off including my house so I can be stupid and take more risk
Re: Vanguard Rate of Return calculation
Damn it. XIRR returned the dreaded Num error
Re: Vanguard Rate of Return calculation
So your approach is choosing to have greater risk and less safety for your future? With no debt you should be able to save a greater % of your income and if you look for ways to cut your expenses you can save even more. That is a better approach.GuitarXM wrote: ↑Sun Nov 28, 2021 5:13 pm SP500 has served me very well. John Bogles reasoning with indexing is sound and the math behind it logically proves why its the safest investment when adjusting for risk.
But 10%/year isn’t going to change my life. I need more risk. I don’t have any debt and everything is paid off including my house so I can be stupid and take more risk
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Re: Vanguard Rate of Return calculation
I use a third party software like Morningstar Portfolio Manager and enter the transaction to check against Vanguard
The account is free to setup and you could input the transaction history from Vanguard
https://www.morningstar.com/portfolio-manager/my-view
Math is not a strength either, my real life friends cannot understand why I am good in the stock market.
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Re: Vanguard Rate of Return calculation
some thoughts:
1. have you read The Arithmetic of Active Management by William Sharpe?
2. Have you read Bessembinder's work?
3. If most professional money managers can't beat the index(es) what makes you think you will:
source: https://oncoursefp.com//images/Vectors% ... 0final.pdf
4. will you get higher risk adjusted returns is what matters. You may get higher returns at times but are they high enough to compensate you for the extra risk? Likely not. Therein lies the rub. It's not just getting higher returns that count. Investing is about only taking risks for which you're likely to be compensated. Otherwise why take the risk?
5. you're looking for an amount of money that will change your life and see the slow growth that allows one to retire as not worth it. Another way of thinking about it is, Do you know when you have "enough"? Why do you need MORE than enough?
6. It sounds like you actually DON'T need to take more risk. If you have no debt and will be on track to have enough to retire, you don't need to take more risk, so why take it if you can win the game without extra unnecessary risk?? Sounds like you have the ability and willingness to take the risk, but I'm not seeing where you have the need.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
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Re: Vanguard Rate of Return calculation
I wonder about the “rate of return” in some of these online calculators when trying to calculate what my investments may look like in 15-20 years. For example, if I assume a 5% rate of return, isn’t that calculator assuming that I make 5% per year? What happens in years like 2021 when the S&P is up 20% but it could be -8% in 2022 and then +4% in 2023 (as an example).
Re: Vanguard Rate of Return calculation
You can't do the problem that way. You can only calculate a statistical range of outcomes using a model that either bases the results on the historical behavior of the market or inputs a mean and standard deviation of returns. Even then you have to consider if the input data is predictive, but at least the uncertainty of the problem is explicitly recognized. Tools of this flavor include www.firecalc.com or the Monte Carlo simulator in Portfolio Visualizer: https://www.portfoliovisualizer.com/mon ... simulation There are a number of tools of the same nature.renegade06 wrote: ↑Mon Nov 29, 2021 6:53 pm I wonder about the “rate of return” in some of these online calculators when trying to calculate what my investments may look like in 15-20 years. For example, if I assume a 5% rate of return, isn’t that calculator assuming that I make 5% per year? What happens in years like 2021 when the S&P is up 20% but it could be -8% in 2022 and then +4% in 2023 (as an example).
Investing isn't rocket science. Rocket science can land a rover on Mars within a few yards of target. Investing projections are massively uncertain.
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Re: Vanguard Rate of Return calculation
10 % per year will change your life unless you are having trouble saving enough to invest and you are not able to earn enough to live within your means.GuitarXM wrote: ↑Sun Nov 28, 2021 5:13 pm
SP500 has served me very well. John Bogles reasoning with indexing is sound and the math behind it logically proves why its the safest investment when adjusting for risk.
But 10%/year isn’t going to change my life. I need more risk. I don’t have any debt and everything is paid off including my house so I can be stupid and take more risk
Investing early, in significant amounts, and holding those investments for a long period of time to allow compounding, and keeping the costs of investing as low as possible in a tax efficient way will change your life in a huge way. Slow and steady does indeed win the race.
Controlling your risks is part of that effect. Not too little, but also not too much risk is important.
Diversification helps to keep risk under control and still get a decent return over a long period of time. If you need an instant life changing result and aim for that, you may get one, but not the one you were hoping for.
Re: Vanguard Rate of Return calculation
Your 3-yr example is a 4.7% CAGR.renegade06 wrote: ↑Mon Nov 29, 2021 6:53 pm I wonder about the “rate of return” in some of these online calculators when trying to calculate what my investments may look like in 15-20 years. For example, if I assume a 5% rate of return, isn’t that calculator assuming that I make 5% per year? What happens in years like 2021 when the S&P is up 20% but it could be -8% in 2022 and then +4% in 2023 (as an example).
Re: Vanguard Rate of Return calculation
You won’t beat the market on a consistent basis is my bet. Warren Buffett offered money to anyone who beat the market over a ten year period.
You will learn from the experience if you try it. If this is in taxable account, and you trade frequently, the additional taxes (STCG) will be a drag on your performance. You will also need to be able to trade in both directions. What about options trading to cover your short positions? Tax loss harvesting. It’s a lot to learn with real money. I think retail investors are at a big disadvantage. They lack information and trade from an inferior platform. I had margin on my account, which cost me interest. Another drag on my performance. One time Fidelity had a margin call during the 2008/9 financial crisis. We had the cash, but technically, Fidelity could have sold shares instead of allowing me to bring a check the next day to their office.
We lived on one paycheck except during the pre-school daycare years. Our savings rate was high and our account multiplied. I got stuck with a telecom stock that was 60k underwater days after I bought it. I held it for over 20 years and finally sold at $86k. I was underwater with EMC stock. Bought it at $140. Thought it would recover when they bought RSA. Then RSA has a security breach, because employees were allowed to check external email and connect usb drives on their manufacturing network. Those two investments convinced me to buy and hold index funds in my taxable account. The return on my investments from individual stocks obviously was horrible.
I hope your trading goes better than mine.
Just my 2 cents.
"I started with nothing and I still have most of it left."