#FinanceQuestion #InvestmentTips #VanguardInvesting
Hey everyone! 👋 Can someone ELI5 Vanguard’s Rate of Return (IRR) for me? I love using Vanguard, but I’m having trouble wrapping my head around the personal rate of return they calculate for my investments. Here’s an example to give you a clearer picture:
In one of my accounts, I see a £400 gain, which Vanguard tells me is a 37% personal rate of return, based on a portfolio value of £3200. 📈
Here are a few things to consider when understanding Vanguard’s Rate of Return:
– Vanguard’s IRR (Internal Rate of Return) takes into account the timing of your contributions and withdrawals, giving a more accurate picture of your actual return.
– Unlike simple percentage gain or loss, IRR considers the time value of money and the cash flows in and out of your investments.
– Your personal rate of return may vary from the fund’s overall performance due to factors like your individual contributions and withdrawals.
To better understand how Vanguard calculates your rate of return, you can check out their resources or seek advice from a financial advisor. Let’s decode the world of investing together! 💪💰🚀
Hope this helps! Would love to hear your insights and experiences with Vanguard’s Rate of Return! 🌟 #InvestingTips #PersonalFinance #KnowledgeIsPower
It’s based on the timing of money in and money out.
Example 1: If you put £200 in on day 1 and on day 366 it was worth £400, I guess you could say you had an annualised return of 100% right?
Example 2: What about if you put £100 in on day 1, another £100 on day 183, and it was worth £400 on day 366? If you were looking at just money depositied vs value, you would say this had the same return as Example 1. But that’s clearly not true, as you managed to get £400 despite only having £100 invested for a full year and another £100 only invested for half a year. So Example 2 would have been the better investment (if only you’d known that on day 1!).
IRR does that maths for you to make a comparable annualised number.
Ultimately though, this shouldn’t matter. The underlying performance of your funds matter, but that’s available in the documentation. What are you going to glean from this information?