One of the most frequent sources of confusion about PortfolioCenter data stems from expecting various numbers on different reports to match.
PortfolioCenter reports are intended to measure different factors. By definition and design, they will produce different numbers. Here are some of the most common items that should NOT be compared:
All returns are not created equal. Internal Rate of Return (IRR) measures the overall growth of the portfolio. Time-Weighted Rate of Return (TWR) measures the growth of the average $1.00 in the portfolio. These number may be close if there are few, small or no cash flows during the time period, but usually IRR and TWR differ.
Percent Gain/Loss ≠ IRR or TWR ≠ Yield
Neither Percent Gain/Loss nor Yield should be compared to IRR or TWR. Percent Gain/loss is the current market value minus the cost basis divided by the cost basis. Yield is the number that results from dividing the annual dividends paid by the current price. If you’ve seen the math for IRR and/or TWR, you’ll know it’s not even remotely close.
Tax reports ≠ Performance Reports
Tax reports measure the amount of gain or loss based on the purchase price. Performance reports measure the amount of gain during the time period of the report based on market value.
Dollar Gain/Loss ≠ IRR or TWR
Dollar Gain/loss is a different creature than IRR and TWR. Dollar Gain is the current value minus the cash invested (of which there are 3 different types). Dollar gain can be a negative number while the TWR is a positive number and vice-versa.
Performance Contributions/Withdrawals ≠ Checks written and deposited
The total contributions and withdrawals on PortfolioCenter performance reports rarely matches the sum of the checks the client wrote or added during the period. For performance purposes, items other than checks in and out are included in performance contributions and withdrawals.[button url=”http://www.krisan.com/contact/” target=”blank” size=”5″]Need help?[/button]
Photo taken by Elsie and used here under Flickr Creative Commons.