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Calculating Personal Rate of Return

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    Calculating Personal Rate of Return

    I've got some questions about Fidelity's personal rate of return and maybe someone here can sort it out. Here are the numbers:

    My contributions + employer contributions equals about 5575 for this year for my 401k. My balance is currently reading at 6088. Now, they say my personal rate of return is 24.9% but if I just do math for percent change it says 9 something percent. I'm a little unclear about this discrepancy and why there is such a big difference in those 2 numbers.

    #2
    Percentage change is never going to match personal rate of return, because they represent different things.

    Percentage change looks at the total value of your portfolio from one year to the next.

    Personal rate of return looks at the rate your money grew.

    If you invest $1 on 1/1/13 and on 12/31/13 it is worth $1.09, your personal rate of return is 9%.

    If you invest $1 on 7/1/13 and on 12/31/13 it is worth $1.09, your personal rate of return is 18%.

    Either way, you end 2013 with a portfolio worth $1.09.

    Percent change looks at the size of your entire portfolio and how it changes. It does not distinguish between growth of principal and new money.

    If on 1/13/12, your portfolio is worth $1, and on 1/13/13, it is worth $2, that is a percent change of 100%. But if that $1 came from a new contribution, your personal rate of return is 0%.

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      #3
      That makes perfect sense. Thanks!

      So when someone talks about how much their portfolio grew in a given period of time, they are usually referring to their Personal Rate of Return?

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