How I Calculate My Portfolio’s Returns

“How much is your portfolio returning every year?”

That is one question I tend to get when I tell people I am an investor. However, after many years, I realised many people do not have a systematic way of calculating their portfolio’s returns. In fact, many investors do not calculate their total returns at all.

Many would just focus on their winners, claiming how much they have earned from great investments but disregard their losers and hope that these stocks would get back to profitability one day.

When I first started investing, I, too, did not have a proper method of measuring how well my portfolio was performing. It took me a few years to come up with a system to calculate my portfolio’s returns.

Calculating my portfolio’s returns allows me to compare my performance with other mutual funds in the market or even the market index. This then lets me know if all the work I am doing is worth it, or I should just invest in a passive fund to save me all the trouble of reading hundreds of annual reports.

So, how do I calculate my portfolio’s returns?

I measure my portfolio like a mutual fund. Let’s call my portfolio “ABC fund”. I would start by putting in a lump sum of money for my investment. For example, if I start off with S$10,000 for investment, I would measure the portfolio in terms of net asset value (NAV) per share. For easy measurement, we can start with a NAV per share value of S$1.00. That means, for my starting portfolio, I own 10,000 shares of my ABC fund at S$1.00 per share. In total, that would be S$10,000 in investment.

I would then invest the money into stocks I have chosen. By the next month end, I would sum up all the value of my stocks and the remaining cash together. For example, if all the stocks and remaining cash amount to just S$9,000, it means my NAV per share has declined to S$0.90 per share. This is because I would still own 10,000 shares in my ABC fund, but the absolute amount of the investment has dropped. In this way, I can track the month-to-month performance of my ABC funds versus any other mutual funds in the market.

If I am adding more capital into my ABC fund in the second month, it means I would be buying into the fund at S$0.90 per share. For example, if I am adding S$5,000 in capital into my ABC fund, it means I would be buying 5556 shares (S$5,000/S$0.90) at S$0.90 per share. So, by the end of month two, I would own 15,556 shares of my ABC fund, but my total invested capital will still be S$15,000.

You can do it on a month-by-month, quarter-by-quarter or even year-by-year basis. But this method of measuring my portfolio gives me a more accurate representation of how my portfolio is performing. It allows me to review my investment more efficiently and makes me accountable. I hope you will find this method of measuring your portfolio useful as well.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.