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Thursday, March 20, 2008

* Tools To Calculate Investment Returns

The ability to track and calculate a total rate of return for your your portfolio, and subsets of it, is an important management tool. To calculate an annual and life-to-date rate of return for an individual stock, I will refer you to my article "The Winning Score - Part 2 of 2". This same technique could be used for calculating a return on an entire portfolio, or subsets of it; however, it would be extremely cumbersome and time consuming. Besides, there are much better tools to do it such as the one I use, MSN's Deluxe Portfolio at MoneyCentral (MSNDP).


If you have not yet selected a portfolio manager, I would recommend you take MSNDP for a test drive. It is by far the best online portfolio manager that I have found. MSNDP is fully customizable by the user. By my count, there are 83 unique items that can be tracked per security ranging from the usual symbol, price, volume, change, high, low, to the unusual % cash, % debt, % equity (for funds), bond type, coupon, yield to maturity (for bonds), low target price, beta, industry, risk, shares outstanding, (for equities), grant date, exercises, expirations (for employee stock options).

In addition, you can combine assets into accounts and track them as a group. I have set up the following asset groups in MSNDP:
  • Company Stock & Peers: Performance Shares issued to me by my employer and shares of peer companies that I have purchased
  • Company LTI: Share-based long-term incentives, such as company stock options and unvested restricted stock
  • Core: My core mutual fund holdings
  • Income Stocks: My dividend income stocks
  • Income ETFs: Income focused Exchange-Traded-Funds
  • Asset Allocation: Asset allocation focused ETFs
  • Roth IRA: My Roth Individual Retirement Account
Core, Income Stocks, Income ETFs and Asset Allocation noted above are more fully described in my "Process Overview and Asset Allocation" article.

With MSNDP year-to-date and life-to-date annualized returns can be calculated for the portfolio as a whole, the groups above, an individual holdings and a combination of the groups above. I often will look at Income Stocks and Income ETFs as a combined group. You view combined groups by hiding all groups except the ones you want to combine.

As discussed in yesterday's post "How To Increase Your Portfolio's Return", I never remove sold securities. However, MSNDP will allow me to temporarily hide them and view the returns as if I had never bought and sold them (if only life had this option).

For me the most useful feature of MSNDP is the ability to export all the financial information to Excel. This information drives my two massive financial spreadsheets. MSNDP has so many more features that time won't allow me to go into. One caveat though, being part of the Microsoft family, MSNDP does not work with Firefox. I use both IE and Firefox, so this is not a big deal for me.

What do you use to track and manage your portfolio?


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