Your Personal Rate of Return

Reviewing your account’s performance over time can help ensure you’re on track toward achieving your financial goals. But remember to keep your personal rate of return in the proper perspective.

The reason it’s called your personal rate of return is because no one else is in the exact same investing situation. How your money is divided among stocks, bonds and cash; how long you own your investments; and how the market performed during that time can play a part.

Performance can be volatile in the short run, so base your investing decisions on long-term expectations, not short-term fluctuations. Other factors — such as when you buy and sell investments, and the performance of those investments — can make comparisons to a benchmark more difficult.

Consider this hypothetical example:

• Suppose you buy 100 shares of an investment at $100 per share (point A, below), for a total investment of $10,000.
• Six months later, the price has risen to $120 a share (point B), and you decide to invest another $10,000, purchasing 83.33 shares.
• At the end of the year, the market value is $108 per share, making your investment worth $19,800 ($108 x 183.33 shares). Because you invested a total of $20,000, your personal rate of return for the year is ‑1.1%. The investment itself, however, reports a gain of 8% for the year since it started at $100 and ended at $108.
• Even though the share price is 8% higher one year after your original purchase, because you bought more shares in the middle of the year when the price was higher, you ended up with a negative personal rate of return.

How we can help

Need help understanding your personal rate of return? For more information or to schedule a portfolio review, contact your Edward Jones advisor.