Calculating Rate of Return (ROR)

[macandal]

Hello all. Newbie here, posting for the first time. I'm still learning things and I wanted to ask you how to figure out the Rate of Return. This is what I have to work with:

• Beginning balance (ending of previous term)
• Payroll (My) contributions
• Change in value (can't quite figure out where this comes from)
• Ending balance (ending of current term)

How can I figure out my ROR from the information I have above?

Also, how do I figure out the ROR from my own investments? These are the conditions I'm working under:

• I buy shares of stock on a regular basis (dollar cost averaging; I do it monthly)
• Dividends are reinvested
• Sometimes I sell shares

Thanks. I've looked all over the internet and haven't found anything that seems to work with the criteria I'm working under. I don't think I can use the simple formula of ROR (final value of investment minus beginning value of investment divided by beginning value of investment). Because shares are bought at different times (both by me and by the dividends being reinvested), the value of the investment may go up or down, and shares are sometimes sold, the calculation becomes muddled.

I would like to learn how to do this manually first (that's how I learn). Once I know it, I will automate it on an Excel spreadsheet.

Thanks. I'd appreciate anything that helps me learn more.

 

[macandal]

Have I stumped the accountants? I can't be the first person who wants to do this, can I? I hope someone has an answer. Thanks again.

 

[bklynboy]

I think you have to look at each cash flow to be precise but what I do to confirm the calcualtion in my 401K is to take:

Earnings/((CY cash flows)/2+BOY Balance) = Annual Rate of Return

This seems to match what is reported to me as I believe most money managers take a simple approach to developin the return.

If you want to be precise then you need to set up a worksheet that shows each individual cash flow (including dividends reinvested) and determine your return based on that schedule. If you have an example, I can see if I can set it up for you and tie into whatever return you are being told.