Sunday, May 6, 2012

How do I calculate the return from my share investment?

Normally I just take the absolute dollars to measure my gain and loss in my share investment as it is the most “TRUE” indicator which tells me whether I am making money or not. I am choosing to avoid popular function like XIRR to calculate annualized returns as it is just an indicator to make thing look nicer only.

Let me give an example, if you have invested for 10 years, the XIRR will just show 10 different values of return in each of the 10 years. What is the point to see these values if your true return in dollar is zero?

If your return is negative, XIRR values may only have the consoling effect telling you that some percentage of the investment money is lost in each of 10 years, but in effect you are losing much more in term of absolute percentage.

If your return is positive, XIRR values are just nice figures to show other that you are making some percentage from your investment for each of the 10 years. But how much in absolute dollar, no one will know.

5 comments:

Wallence said...

Hi, may I know how you calculate for XIRR. Please advise.

CreateWealth8888 said...

"Let me give an example, if you have invested for 10 years, the XIRR will just show 10 different values of return in each of the 10 years. What is the point to see these values if your true return in dollar is zero?"


You should be seeing only one XIRR value over your measuring time frame e.g 1 yr, 5 yr or since investing.

Show us how you measure your XIRR?

CreateWealth8888 said...

BTW, how do you know that the return on your investment (saving from earned income) beat the inflation rate over the years?

Freedom Achiever said...

Hi Wallence and CreateWealth8888,

Thank for the comment. I believe most of us know the formula for calculating annualized returns using XIRR. If not, there are many free downloadable spreadsheets from the internet to help to do the calculation.

I don't measure XIRR for a simple reason that you cannot control the rate of return from investment which can vary a lot from year to year.

I believe time would be better spent on finding better investment opportunities rather than calculating XIRR.

Of course it is only my opinion, I don't expect all to agree with me.

Regards,
Freedom Achiever

CreateWealth8888 said...

XIRR is measure of your investment performance.

If you choose not to measure how do you know you are really good at finding better investment opportunties.

Anyway, I think your mind is already fix no matter what.

Have you started your journey towards financial freedom?

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