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How do you calculate the return on investments?
We calculate the return on investments using Time-Weighed Return (TWR). We also use Money-Weighted Return (MWR).
There are different methods to calculate returns such as time-weighted return, money-weighted return, internal rate of return and simple return. Among these, we believe that the time-weighted return is the best method. Annualised internal rate of return is another name for money-weighted return. We do not use unannualised internal rate of return as it is not most suitable. We do not suggest using the simple return.
TWR is the compound rate of daily return. TWR shows how effectively QuietGrowth has managed your investments. It does not consider when you have executed your deposits and withdrawals, and this should be the case if we need to measure the performance of QuietGrowth. Moreover, it is preferable that the performance of QuietGrowth portfolios is calculated similar to the manner in which the performance of an index fund is calculated, and TWR is used by index funds.
Also read the answers to the related questions:
- What is the historical performance of your portfolios?
- Why don’t you display 1-year and 3-year portfolio returns, in addition to 10-year returns?