As of next week, we are moving towards a better approach for calculating your investment returns.
We currently report returns using a simple calculation. For an example account with a $10,000 initial investment, and $5,000 of additional deposits added over five months the simple calculation is:
This current calculation is a simple way to calculate investment returns and works well if only a single investment is made with no further contributions. However, this calculation is less accurate when you make regular contributions, as it doesn’t take into account when your money was invested.
At Clover, the majority of our clients make regular contributions into their Clover account (taking advantage of compounding returns) so we’re moving to a different calculation that allows us to take into account when these contributions are invested.
As of next week, we’ll be reporting portfolio returns using the Modified Dietz method which takes into account the size and timing of all contributions.
The Modified Dietz Method uses the formula below:
I’ll save you the math calculation, but using the same numbers as above, the return is now calculated as 7.64%.
In this particular example, the return calculated using the Modified Dietz method is higher than that calculated using the simple calculation. Whether your newly reported return will be higher or lower than what was previously reported will be dependent on your additional contributions. However, we feel that the new method will more accurately represent your portfolio’s true investment return
If you want to discuss the gnarly maths of the Modified Dietz method or have any other questions get in touch with us at firstname.lastname@example.org.
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