Investment and Savings

The total returns are based on time-weighted return approach, which is calculated by multiplying the daily returns of your portfolio and linking them together to show how the returns are compounded over time. It shows you how much \$1 of your investment would have grown throughout your investment period, without considering the size and timing of interim cash inflows or outflows. This is in line with how fund managers measure the performance of their funds.

Mathematically, if the period 1 return on your investment is represented by r1, and period 2 is represented by r2 and so on, the Time-Weighted Return is determined by the formula below: Total Returns = [(1+r1) (1+r2) (1+r3) (1+r4) …. (1+rn)] – 1

Example:

Suppose Peter invests \$10,000 into a portfolio on 1 Jan. On 1 July, his portfolio is valued at \$11,500 and at this point he adds another \$1,000 bringing his portfolio value to \$12,500 (\$11,500 + \$1,000). By the end of the year, the portfolio has decreased in value to \$12,000.

Period Return (1 Jan to 30 Jun) = (\$11,500 – \$10,000)/\$10,000 = 15%

Period Return (1 Jul to 31 Dec) = (\$12,000 – \$12,500)/\$12,500 = -4%

Therefore, the Time-Weighted Return during this entire period (1 Jan to 31 Dec) is 10.4%, which is computed by geometrically linking the returns of the two periods, i.e. [(1+0.15) (1-0.04)] – 1 = 10.4%

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