Why your portfolio may not be as healthy as you think
19.05.12
In other words, that seemingly glowing return on your investments could be due in large part to the additional contributions you've made, not to growth of the investments themselves.
Warren MacKenzie, CEO of Toronto-based Weigh House Investor Services, says that when he worked at a big mutual fund company 20 years ago, he suggested they provide clients with calculations of their personal rate of return rather than the overall growth of their portfolio.
"'Great idea,'" they said. 'We'll get right on it.'"
Twenty years later, he's still waiting.
Common error
To figure out the real performance of your portfolio, you have to account for all those deposits (and any withdrawals). Failing to do that will leave you with a wildly inaccurate picture of how your investment portfolio has been doing.
It sounds simple, but it's surprising how often this factor is overlooked.
Back in the 1990s, a group of women investors from Beardstown, Ill., realized they'd made this mistake – but not before they'd written a best-selling book about how their small investors club had beaten the stock market and produced an annualized return of 23.4 per cent over 10 years. The book crowed about how their approach to investing delivered results that far surpassed what most professional money managers had been able to achieve.
Source: CBC.ca