[{"data":1,"prerenderedAt":14382},["ShallowReactive",2],{"blog-good-financial-goals":3,"blog-popular":438},{"id":4,"title":5,"body":6,"description":427,"extension":428,"meta":429,"navigation":430,"path":431,"publishedAt":432,"seo":433,"seo_description":434,"seo_title":434,"social_image":26,"stem":435,"updatedAt":436,"__hash__":437},"blog/blog/good-financial-goals.md","6 Steps to Set Good Financial Goals",{"type":7,"value":8,"toc":399},"minimark",[9,34,38,43,62,66,69,72,76,79,139,143,146,149,152,155,158,161,164,167,170,174,177,198,202,205,208,212,215,224,228,231,234,242,250,254,257,260,264,267,275,279,282,309,317,321,325,328,332,335,339,342,346,349,353,356,364,369],[10,11,12,13,12,18,12,22],"picture",{},"\n    ",[14,15],"source",{"srcSet":16,"type":17},"/blog_images/good-financial-goals/how-to-set-financial-goals.avif","image/avif",[14,19],{"srcSet":20,"type":21},"/blog_images/good-financial-goals/how-to-set-financial-goals.webp","image/webp",[23,24],"img",{"alt":25,"src":26,"style":27,"width":28,"height":29,"decoding":30,"fetchPriority":31,"className":32},"How to set good financial goals?","/blog_images/good-financial-goals/how-to-set-financial-goals.png","max-width:100%; width:700px; height:auto;aspect-ratio:'attr(width) / attr(height)'",700,394,"async","high",[33],"cover-image",[35,36,37],"p",{},"Whether you are a young adult seeking Financial Independence and Early Retirement (FIRE) or a parent saving for a child's college tuition, setting investment goals is an essential element of managing personal finances successfully. A financial goal turns a vague intention into a number, a date and a monthly contribution, which is what makes progress measurable. The six steps below turn the SMART framework into a process you can actually run.",[39,40,42],"h2",{"id":41},"key-takeaways","Key takeaways",[44,45,46,50,53,56,59],"ul",{},[47,48,49],"li",{},"A financial goal is a target set for managing money, and it is the input from which a financial plan is built.",[47,51,52],{},"A SMART financial goal is Specific, Measurable, Achievable, Relevant and Time-based, which forces every goal to carry a number and a deadline.",[47,54,55],{},"Setting an investment goal takes six steps: set the objective, make it measurable, set a realistic expected return, set a timeframe, set a contribution, then adjust the parameters until they reconcile.",[47,57,58],{},"A financial goal that does not reconcile can only be fixed in four ways: lower the target, accept more risk for a higher expected return, extend the timeframe, or contribute more each month.",[47,60,61],{},"A financial goal is only useful if you measure against it, which means tracking portfolio value or dividend income against the target at regular checkpoints.",[39,63,65],{"id":64},"what-is-a-financial-goal","What is a financial goal?",[35,67,68],{},"A financial goal is a target set for managing money, stated precisely enough that you can tell whether you have reached it. It is the starting point for a financial plan, because the plan is simply the set of decisions that gets you from where you are to that target.",[35,70,71],{},"Financial goals differ by time horizon and by what they buy. Retirement, a house deposit, college tuition, a large purchase and a stream of passive income are all financial goals, but they call for very different levels of risk and very different assets. While there are many frameworks for goal setting, one of the most used is SMART.",[39,73,75],{"id":74},"what-is-a-smart-financial-goal","What is a SMART financial goal?",[35,77,78],{},"A SMART financial goal is one that is Specific, Measurable, Achievable, Relevant and Time-based. SMART is a general goal-setting framework, not an investing-specific one, but it applies cleanly to investment goals because every criterion forces a vague ambition into a number.",[80,81,82,95],"table",{},[83,84,85],"thead",{},[86,87,88,92],"tr",{},[89,90,91],"th",{},"Criterion",[89,93,94],{},"What it forces you to decide",[96,97,98,107,115,123,131],"tbody",{},[86,99,100,104],{},[101,102,103],"td",{},"Specific",[101,105,106],{},"What exactly you are investing for, and how",[86,108,109,112],{},[101,110,111],{},"Measurable",[101,113,114],{},"The number that tells you when you have arrived",[86,116,117,120],{},[101,118,119],{},"Achievable",[101,121,122],{},"Whether the return you need is realistic for the risk you accept",[86,124,125,128],{},[101,126,127],{},"Relevant",[101,129,130],{},"Whether this goal fits your income, debts and other obligations",[86,132,133,136],{},[101,134,135],{},"Time-based",[101,137,138],{},"The date by which you intend to reach it",[140,141,103],"h3",{"id":142},"specific",[35,144,145],{},"A specific investment goal states what you want to accomplish and how you plan to do it, with no ambiguity left. Instead of \"I want to make more money,\" a specific goal reads: \"I want to start investing today and continue to save toward my retirement in 20 years.\" The test is whether someone else reading the goal would know exactly what you are trying to do.",[140,147,111],{"id":148},"measurable",[35,150,151],{},"A measurable investment goal has a number attached that lets you track progress and tell whether you are on track. Depending on the outcome you want, that number can be the size of your portfolio at the end of the period, or the monthly cash flow you receive from dividends if you are investing for passive income. Both are trackable; a goal like \"be comfortable\" is not.",[140,153,119],{"id":154},"achievable",[35,156,157],{},"An achievable investment goal is one whose required return is realistic given your risk tolerance, your savings rate and your time frame. This is the most challenging part of goal setting, because it is where an appealing target meets arithmetic. A goal that needs 20% a year from a conservative portfolio is not achievable, however motivating it sounds.",[140,159,127],{"id":160},"relevant",[35,162,163],{},"A relevant investment goal is one that fits your overall financial situation rather than sitting apart from it. Personal finance and investing are closely connected, so consider your age, income, debts and other financial obligations when setting an investment goal. Investing for a 20-year goal while carrying high-interest debt, for instance, is rarely the relevant priority.",[140,165,135],{"id":166},"time-based",[35,168,169],{},"A time-based investment goal has a specific date attached, plus checkpoints along the way. Setting a time frame helps you stay motivated and on track, and intermediate goals at regular intervals let you correct course long before the final date arrives. A goal with no date cannot be behind schedule, which is exactly why it drifts.",[39,171,173],{"id":172},"how-do-you-set-an-investment-goal","How do you set an investment goal?",[35,175,176],{},"Setting an investment goal takes six steps: define the objective, make it measurable, set a realistic expected return, set a timeframe, set a periodic contribution, then adjust the parameters until they reconcile. The first five steps produce a set of assumptions, and the sixth is where you find out whether those assumptions agree with each other.",[178,179,180,183,186,189,192,195],"ol",{},[47,181,182],{},"Set your objective",[47,184,185],{},"Set a measurable goal",[47,187,188],{},"Set a realistic expected return",[47,190,191],{},"Set a timeframe",[47,193,194],{},"Set a monthly or annual contribution",[47,196,197],{},"Adjust your parameters",[39,199,201],{"id":200},"step-1-how-do-you-set-your-investment-objective","Step 1: How do you set your investment objective?",[35,203,204],{},"Setting an investment objective means naming the purpose the money is for, in plain language, before any numbers are attached. Common objectives include retirement, college tuition, a large purchase, a house deposit and travel.",[35,206,207],{},"The objective matters because it determines the time horizon and the acceptable risk. Money needed for a house deposit in three years and money needed for retirement in thirty are not invested the same way, even for the same person.",[39,209,211],{"id":210},"step-2-how-do-you-turn-an-objective-into-a-measurable-goal","Step 2: How do you turn an objective into a measurable goal?",[35,213,214],{},"Turning an objective into a measurable goal means attaching a single quantified target that defines arrival. If the objective is retirement, the goal can be the portfolio value you need for a comfortable retirement, a figure you can estimate with retirement calculators.",[35,216,217,218,223],{},"The target does not have to be a portfolio value. An income-focused investor can set the goal as monthly income from dividends or rent instead, in which case ",[219,220,222],"a",{"href":221},"/blog/yield-on-cost/","yield on cost"," is the more natural progress measure than portfolio size. Whichever you choose, write down one number.",[39,225,227],{"id":226},"step-3-how-do-you-set-a-realistic-expected-return","Step 3: How do you set a realistic expected return?",[35,229,230],{},"Setting a realistic expected return means choosing the annual rate you assume your portfolio will earn over the long term, and making sure it matches the risk you are actually willing to take. If you are not comfortable holding a large percentage of your portfolio in equities or other relatively risky assets, it is not reasonable to expect a high rate of return.",[35,232,233],{},"Historical data is a useful anchor. In the ten years to the start of 2023, the S&P 500 returned an average of around 12.5% annually, while the 10-year Treasury averaged a yield of around 3% over the same period. Past performance is no guarantee of future results, but it gives a defensible starting range rather than a wish.",[35,235,236],{},[219,237,241],{"href":238,"rel":239},"https://www.blackrock.com/corporate/insights/blackrock-investment-institute/interactive-charts/return-map",[240],"nofollow","Link to 10Y returns on various asset classes",[35,243,244,245,249],{},"Your expected return should follow from your ",[219,246,248],{"href":247},"/blog/asset-allocation/","asset allocation"," rather than being chosen first and worked backwards from, because the mix of stocks, bonds and cash is what actually generates the return.",[39,251,253],{"id":252},"step-4-how-do-you-set-a-timeframe-for-a-financial-goal","Step 4: How do you set a timeframe for a financial goal?",[35,255,256],{},"Setting a timeframe means choosing the date by which you intend to reach the target, and being honest about whether that date is compatible with the return you assumed. Too short a timeframe either makes the goal unrealistic or forces you into higher-risk assets to bridge the gap.",[35,258,259],{},"Long timeframes are more forgiving in both directions. They give compounding more time to work, and they give a portfolio time to recover from a drawdown, which is why a 20-year goal can tolerate an equity-heavy allocation that a 3-year goal cannot.",[39,261,263],{"id":262},"step-5-how-much-should-you-contribute-each-month","Step 5: How much should you contribute each month?",[35,265,266],{},"The monthly contribution is usually a fixed percentage of your income set aside for the goal, and it is the single parameter you control most directly. How much you add periodically often matters more to the outcome than the return you earn, particularly in the early years when the portfolio is small.",[35,268,269,270,274],{},"Investing a fixed amount at a regular interval is also ",[219,271,273],{"href":272},"/blog/what-is-dca/","dollar cost averaging",", which spreads your purchases across different prices instead of committing everything at one price. Tracking those contributions separately from investment gains matters, because contributions inflate portfolio value without being performance. Portseido separates the two by calculating time-weighted and money-weighted returns from your transaction history, so a growing balance does not get mistaken for a growing return.",[39,276,278],{"id":277},"step-6-how-do-you-adjust-your-goal-when-the-numbers-dont-work","Step 6: How do you adjust your goal when the numbers don't work?",[35,280,281],{},"When the assumptions do not reconcile, you have exactly four levers, and you must pull at least one. The most common problem in investment goal setting is that the target turns out to be unreachable with the return, timeframe and contribution chosen in steps 3 to 5.",[44,283,284,291,297,303],{},[47,285,286,290],{},[287,288,289],"strong",{},"Reduce your measurable goal"," — accept a smaller target number.",[47,292,293,296],{},[287,294,295],{},"Increase your expected return"," — which realistically means accepting more risk.",[47,298,299,302],{},[287,300,301],{},"Stretch out the timeframe"," — give compounding longer to work.",[47,304,305,308],{},[287,306,307],{},"Add more on a monthly basis"," — raise the contribution.",[35,310,311,312,316],{},"Run the parameters from steps 3 to 5 through an ",[219,313,315],{"href":314},"/tools/investment-calculator/","investment growth calculator"," to see the portfolio value they produce at the end of the period, then compare it with the target from step 2. Once the target and the assumptions agree, the goal is set and you can begin planning the investments that deliver it.",[39,318,320],{"id":319},"frequently-asked-questions","Frequently asked questions",[140,322,324],{"id":323},"how-many-financial-goals-should-you-have-at-once","How many financial goals should you have at once?",[35,326,327],{},"Most people can run two or three financial goals in parallel: a short-term one such as an emergency fund, a medium-term one such as a house deposit, and a long-term one such as retirement. Beyond that, contributions get spread so thin that no goal progresses visibly, which is the main reason goal-setting is abandoned.",[140,329,331],{"id":330},"what-is-a-realistic-expected-return-to-assume-for-a-financial-goal","What is a realistic expected return to assume for a financial goal?",[35,333,334],{},"Assume a return consistent with the asset mix you will actually hold, not the best year you can remember. A portfolio weighted toward equities has historically produced high single-digit to low double-digit annual returns over long periods, while bond-heavy portfolios produce considerably less. Assuming a rate above what your allocation can plausibly deliver guarantees the goal fails late rather than early.",[140,336,338],{"id":337},"how-often-should-you-review-a-financial-goal","How often should you review a financial goal?",[35,340,341],{},"Review a financial goal once or twice a year, and after any major change in income, expenses or family circumstances. Annual review is frequent enough to catch a contribution rate that has fallen behind inflation, and infrequent enough that you are not reacting to market noise. Set the checkpoints in advance so the review happens on schedule rather than after a scare.",[140,343,345],{"id":344},"what-is-the-difference-between-a-financial-goal-and-a-budget","What is the difference between a financial goal and a budget?",[35,347,348],{},"A financial goal is the target you are investing or saving toward; a budget is the monthly plan for income and spending that frees up the contribution. The budget produces the money, the goal decides where it goes. A goal without a budget has no funding source, and a budget without a goal has no destination.",[39,350,352],{"id":351},"how-to-track-financial-goals-in-portseido","How to track financial goals in Portseido",[35,354,355],{},"Portseido is a portfolio tracker that shows whether a financial goal is on schedule. It consolidates holdings across brokers and currencies into one portfolio value, tracks cost basis, and records dividend income and yield on cost, which is what you measure against if your goal is stated as monthly passive income rather than a portfolio total. It calculates time-weighted and money-weighted returns so you can check your realised return against the expected return you assumed in step 3, and benchmarks the portfolio against indices and ETFs.",[35,357,358,359],{},"Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations or set goals for you. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,360,363],{"href":361,"rel":362},"https://www.portseido.com/",[240],"Try Portseido free",[35,365,366],{},[287,367,368],{},"References and further readings:",[44,370,371,378,385,392],{},[47,372,373],{},[219,374,377],{"href":375,"rel":376},"https://www.mindtools.com/a4wo118/smart-goals",[240],"SMART Goals - How to Make Your Goals Achievable",[47,379,380],{},[219,381,384],{"href":382,"rel":383},"https://www.forbes.com/advisor/in/investing/5-golden-rules-to-create-your-asset-allocation-plan/",[240],"5 Golden Rules To Create Your Asset Allocation Plan",[47,386,387],{},[219,388,391],{"href":389,"rel":390},"https://www.thebalancemoney.com/how-to-calculate-your-retirement-needs-4061547",[240],"How to Calculate Your Retirement Savings Needs",[47,393,394],{},[219,395,398],{"href":396,"rel":397},"https://lifemathmoney.com/how-to-become-financially-independent/",[240],"How to Become Finacially Independent",{"title":400,"searchDepth":401,"depth":401,"links":402},"",3,[403,405,406,413,414,415,416,417,418,419,420,426],{"id":41,"depth":404,"text":42},2,{"id":64,"depth":404,"text":65},{"id":74,"depth":404,"text":75,"children":407},[408,409,410,411,412],{"id":142,"depth":401,"text":103},{"id":148,"depth":401,"text":111},{"id":154,"depth":401,"text":119},{"id":160,"depth":401,"text":127},{"id":166,"depth":401,"text":135},{"id":172,"depth":404,"text":173},{"id":200,"depth":404,"text":201},{"id":210,"depth":404,"text":211},{"id":226,"depth":404,"text":227},{"id":252,"depth":404,"text":253},{"id":262,"depth":404,"text":263},{"id":277,"depth":404,"text":278},{"id":319,"depth":404,"text":320,"children":421},[422,423,424,425],{"id":323,"depth":401,"text":324},{"id":330,"depth":401,"text":331},{"id":337,"depth":401,"text":338},{"id":344,"depth":401,"text":345},{"id":351,"depth":404,"text":352},"A good financial goal is Specific, Measurable, Achievable, Relevant and Time-based. Six steps to set one, and how to adjust it when the numbers don't work.","md",{},true,"/blog/good-financial-goals","2023-01-30",{"title":5,"description":427},null,"blog/good-financial-goals","2026-09-10","97Ug30eKQS_g56MHlbUeu4chH6mNk7E-hG6A-goDxro",[439,938,1337,1839,2170,2550,2932,3360,3839,4377,4691,4958,5273,5677,6174,6733,7020,7430,7819,8534,8961,9378,9800,10132,10538,11249,11686,12131,12605,12993,13387,13736,14025],{"id":440,"title":441,"body":442,"description":931,"extension":428,"meta":932,"navigation":430,"path":933,"publishedAt":934,"seo":935,"seo_description":434,"seo_title":434,"social_image":623,"stem":936,"updatedAt":436,"__hash__":937},"blog/blog/alternative-data-for-investing.md","Alternative data for researching a company",{"type":7,"value":443,"toc":911},[444,452,455,457,474,478,481,484,492,496,499,593,596,600,603,612,627,630,634,637,657,671,680,684,687,696,709,712,716,719,734,737,741,744,753,768,771,775,778,791,794,798,801,809,822,825,829,832,852,860,862,866,869,873,881,885,888,892,895,899,902,908],[35,445,446,447,451],{},"Philip A. Fisher's ",[448,449,450],"em",{},"Common Stocks and Uncommon Profits"," is among the best investing books I have read. In it he coined the term \"scuttlebutt\", the practice of researching a company by talking to its customers, suppliers, competitors and employees rather than relying on what the company says about itself. The method still works, and the internet has made most of it possible from a desk. This article lists the sources I find most useful when researching a company and its business.",[35,453,454],{},"Annual reports and earnings calls will not tell you how good a company's products and services really are. In a company's own documents it is always the best at something and always the leader in some subsegment of its market. Alternative data is how you check.",[39,456,42],{"id":41},[44,458,459,462,465,468,471],{},[47,460,461],{},"Alternative data is information about a company drawn from non-traditional sources rather than from its financial statements, filings or earnings calls.",[47,463,464],{},"The most accessible alternative data sources for individual investors are product review videos, app and product review sites, industry communities, employee reviews, job openings, search trend data and web traffic estimates.",[47,466,467],{},"Alternative data is primarily useful for assessing product quality, customer sentiment, employee sentiment and business direction, which financial statements report only after the fact.",[47,469,470],{},"Alternative data is unstructured, unaudited and self-selected, so it indicates direction and theme rather than measurable quantities.",[47,472,473],{},"Alternative data supplements financial analysis rather than replacing it, because it says nothing about valuation, balance sheet strength or capital allocation.",[39,475,477],{"id":476},"what-is-alternative-data-in-investing","What is alternative data in investing?",[35,479,480],{},"Alternative data is any information about a company that comes from outside its own financial disclosures and outside conventional market data. Product reviews, app store ratings, job postings, employee reviews, search volume and website traffic estimates are all alternative data.",[35,482,483],{},"The appeal is timing and perspective. Financial statements describe what has already happened, quarters after it happened, and they describe it from the company's point of view. Alternative data describes what customers and employees are experiencing now. It will not give you a number you can put in a model, but it will tell you whether a product people are supposed to love is actually loved.",[35,485,486,487,491],{},"None of it removes the uncertainty. Research narrows the range of outcomes rather than fixing them, which is the sense in which ",[219,488,490],{"href":489},"/blog/investing-and-the-game-of-chance/","investing remains a game of chance"," no matter how much evidence you gather.",[39,493,495],{"id":494},"what-are-the-main-sources-of-alternative-data-for-researching-a-company","What are the main sources of alternative data for researching a company?",[35,497,498],{},"The main alternative data sources available to an individual investor at no cost are product review content, review and rating platforms, industry communities, employee review sites, job listings, search trend data and web traffic analytics. Each answers a different question.",[80,500,501,514],{},[83,502,503],{},[86,504,505,508,511],{},[89,506,507],{},"Source",[89,509,510],{},"What it tells you",[89,512,513],{},"Where to look",[96,515,516,527,538,549,560,571,582],{},[86,517,518,521,524],{},[101,519,520],{},"Product review content",[101,522,523],{},"How good the product actually is, versus competitors",[101,525,526],{},"Google, YouTube",[86,528,529,532,535],{},[101,530,531],{},"Review and rating platforms",[101,533,534],{},"What real customers repeatedly praise and complain about",[101,536,537],{},"Google Play, Apple App Store, softwareadvice.com, Google Maps, Yelp, Trip Advisor, Amazon",[86,539,540,543,546],{},[101,541,542],{},"Industry communities",[101,544,545],{},"Unfiltered discussion and news within a specific industry",[101,547,548],{},"Reddit, Facebook Groups",[86,550,551,554,557],{},[101,552,553],{},"Employee reviews",[101,555,556],{},"Working environment, management quality, CEO approval",[101,558,559],{},"Glassdoor",[86,561,562,565,568],{},[101,563,564],{},"Job openings",[101,566,567],{},"Where the company is investing and what it plans to build",[101,569,570],{},"The company's own careers page, LinkedIn, Glassdoor",[86,572,573,576,579],{},[101,574,575],{},"Search trend data",[101,577,578],{},"Whether public interest in a brand or product is rising or falling",[101,580,581],{},"Google Trends",[86,583,584,587,590],{},[101,585,586],{},"Web and app analytics",[101,588,589],{},"Traffic, engagement and audience for a site or app",[101,591,592],{},"Similarweb",[35,594,595],{},"The sections below cover each source, why it is useful, and what it cannot tell you.",[39,597,599],{"id":598},"how-do-product-review-videos-help-you-research-a-company","How do product review videos help you research a company?",[35,601,602],{},"Product review videos give you a customer's view of a product when you cannot try it yourself, which is often the case when the product is expensive, unavailable in your region, or sold to businesses rather than consumers. Trying a product first-hand is still the best test; review content is the practical substitute.",[35,604,605,606,611],{},"Reviews can be long and biased, but they convey more about a product than a paragraph in an annual report does, and good ones benchmark the product against its competitors from a user's perspective. Google and YouTube are the two tools that matter here. As an example, ",[219,607,610],{"href":608,"rel":609},"https://www.youtube.com/results?search_query=amazon+fire+stick+vs+roku+vs+apple+tv+vs+chromecast",[240],"browsing YouTube for streaming hardware comparisons"," shows how $ROKU, $AMZN, $AAPL and $GOOGL products compare against each other.",[10,613,12,614,12,617,12,620],{},[14,615],{"srcSet":616,"type":17},"/blog_images/alternative-data-for-investing/youtube-product-reviews.avif",[14,618],{"srcSet":619,"type":21},"/blog_images/alternative-data-for-investing/youtube-product-reviews.webp",[23,621],{"alt":622,"src":623,"style":624,"width":625,"height":626,"decoding":30},"How $ROKU, $AMZN, $AAPL and $GOOGL compares with regards to their streaming hardware","/blog_images/alternative-data-for-investing/youtube-product-reviews.png","max-width:100%; width:923px; height:auto;aspect-ratio:'attr(width) / attr(height)'",923,664,[35,628,629],{},"Watch several reviews rather than one, and weight the ones that criticise specifics over the ones that praise generally.",[39,631,633],{"id":632},"which-review-and-rating-sites-are-useful-for-company-research","Which review and rating sites are useful for company research?",[35,635,636],{},"Review and rating sites are useful because they aggregate enough individual customer opinions that a common theme becomes visible, which a single review or video cannot give you. Which platform to use depends on the market the company sells into:",[44,638,639,645,651],{},[47,640,641,644],{},[287,642,643],{},"Software:"," Google Play Store, Apple App Store, softwareadvice.com",[47,646,647,650],{},[287,648,649],{},"Restaurants:"," Google Maps, Yelp, Trip Advisor",[47,652,653,656],{},[287,654,655],{},"Other products:"," Amazon",[10,658,12,659,12,662,12,665],{},[14,660],{"srcSet":661,"type":17},"/blog_images/alternative-data-for-investing/pins-app-review-on-google-play.avif",[14,663],{"srcSet":664,"type":21},"/blog_images/alternative-data-for-investing/pins-app-review-on-google-play.webp",[23,666],{"alt":667,"src":668,"style":624,"width":625,"height":669,"loading":670,"decoding":30},"$PINS app review on Google Play Store","/blog_images/alternative-data-for-investing/pins-app-review-on-google-play.png",855,"lazy",[35,672,673,674,679],{},"Reading through a body of ",[219,675,678],{"href":676,"rel":677},"https://play.google.com/store/apps/details?id=com.pinterest&hl=en&gl=US&showAllReviews=true",[240],"app reviews"," surfaces why consumers love a product, why they hate it, and which factors they weigh when choosing it. The average star rating is the least interesting part; the recurring complaints are the signal.",[39,681,683],{"id":682},"how-do-industry-communities-help-you-research-a-company","How do industry communities help you research a company?",[35,685,686],{},"Industry communities give you the same customer information that review sites give, but usually more candid, and they keep you current on events and news within an industry. Just as investing communities exist, so do communities for almost every other industry.",[35,688,689,690,695],{},"Reddit and Facebook Groups are the main examples. A subreddit such as ",[219,691,694],{"href":692,"rel":693},"https://www.reddit.com/r/cordcutters/",[240],"r/cordcutters"," for streaming services shows what enthusiasts in that market are switching to and away from, and why.",[10,697,12,698,12,701,12,704],{},[14,699],{"srcSet":700,"type":17},"/blog_images/alternative-data-for-investing/reddit-community.avif",[14,702],{"srcSet":703,"type":21},"/blog_images/alternative-data-for-investing/reddit-community.webp",[23,705],{"alt":706,"src":707,"style":624,"width":625,"height":708,"loading":670,"decoding":30},"CordCutters subreddit","/blog_images/alternative-data-for-investing/reddit-community.png",458,[35,710,711],{},"Community members are enthusiasts rather than average customers, so read them as an early indicator rather than a representative sample.",[39,713,715],{"id":714},"what-can-glassdoor-reviews-tell-you-about-a-company","What can Glassdoor reviews tell you about a company?",[35,717,718],{},"Glassdoor is a site where current and former employees review their employers, which lets an investor assess a company's working environment and, sometimes, how the business is doing right now. After reading enough reviews, the recurring pros and cons become clear.",[35,720,721,722,727,728,733],{},"Glassdoor also publishes CEO approval ratings, showing what employees think of their own chief executive. Glassdoor's own material explains ",[219,723,726],{"href":724,"rel":725},"https://www.glassdoor.com/employers/blog/how-investors-use-glassdoor/",[240],"how investors use Glassdoor"," and ",[219,729,732],{"href":730,"rel":731},"https://help.glassdoor.com/s/article/Ratings-on-Glassdoor?language=en_US",[240],"how each rating is calculated",".",[35,735,736],{},"Treat the volume and trend of reviews as more informative than the score, since departing employees are more motivated to write than satisfied ones.",[39,738,740],{"id":739},"what-do-a-companys-job-openings-reveal","What do a company's job openings reveal?",[35,742,743],{},"A company's job openings reveal where it is investing and what it intends to build, usually well before any of it appears in a financial statement. A sudden run of hiring in one product area or one country is a direction signal that no press release has confirmed yet.",[35,745,746,747,752],{},"Job opening data can be pulled from the company's own careers site and from job listing platforms including LinkedIn and Glassdoor. The example below came from ",[219,748,751],{"href":749,"rel":750},"https://twitter.com/AznWeng",[240],"@AznWeng"," on Twitter.",[10,754,12,755,12,758,12,761],{},[14,756],{"srcSet":757,"type":17},"/blog_images/alternative-data-for-investing/job-openings-data.avif",[14,759],{"srcSet":760,"type":21},"/blog_images/alternative-data-for-investing/job-openings-data.webp",[23,762],{"alt":763,"src":764,"style":765,"width":766,"height":767,"loading":670,"decoding":30},"Jobs opening data","/blog_images/alternative-data-for-investing/job-openings-data.png","max-width:100%; width:462px; height:auto;aspect-ratio:'attr(width) / attr(height)'",462,803,[35,769,770],{},"Track the count over time rather than reading a snapshot, because the change in hiring is the information, not the absolute number.",[39,772,774],{"id":773},"how-can-google-trends-be-used-to-research-a-company","How can Google Trends be used to research a company?",[35,776,777],{},"Google Trends shows the historical search volume trend for a keyword and lets you compare several keywords on the same chart, which is a rough proxy for public interest in a brand or product. In some cases it gives useful colour on a company's short-term performance.",[10,779,12,780,12,783,12,786],{},[14,781],{"srcSet":782,"type":17},"/blog_images/alternative-data-for-investing/google-trend-on-crox.avif",[14,784],{"srcSet":785,"type":21},"/blog_images/alternative-data-for-investing/google-trend-on-crox.webp",[23,787],{"alt":788,"src":789,"style":624,"width":625,"height":790,"loading":670,"decoding":30},"$CROX keyword trends","/blog_images/alternative-data-for-investing/google-trend-on-crox.png",704,[35,792,793],{},"In the example above, Crocs ($CROX) search volume surged during the 2020 Covid lockdowns, which correlated with the company's performance that year. Google Trends reports relative interest on a 0-100 scale rather than absolute search counts, so it shows shape and direction, never a number you can turn into revenue.",[39,795,797],{"id":796},"how-can-web-and-app-traffic-data-be-used-to-research-a-company","How can web and app traffic data be used to research a company?",[35,799,800],{},"Web and app traffic data estimates how many people actually use a company's site or app, which for internet businesses is closer to the underlying driver of revenue than anything reported quarterly. Similarweb offers a free tier for analysing websites and apps, including comparing several against each other.",[35,802,803,804,733],{},"The data includes platform rank, number of visits, bounce rate, average visit duration, ranking trends, visitor demographics such as country, gender and age range, competitors, and user acquisition channels. You can try it on any site, for example ",[219,805,808],{"href":806,"rel":807},"https://www.similarweb.com/website/facebook.com/#overview",[240],"Facebook's traffic overview",[10,810,12,811,12,814,12,817],{},[14,812],{"srcSet":813,"type":17},"/blog_images/alternative-data-for-investing/fb-website-analysis-from-similarweb.avif",[14,815],{"srcSet":816,"type":21},"/blog_images/alternative-data-for-investing/fb-website-analysis-from-similarweb.webp",[23,818],{"alt":819,"src":820,"style":624,"width":625,"height":821,"loading":670,"decoding":30},"$FB website analysis","/blog_images/alternative-data-for-investing/fb-website-analysis-from-similarweb.png",661,[35,823,824],{},"These figures are modelled estimates, not measurements taken from the company's servers, so use the trend and the relative comparison rather than the absolute visit count.",[39,826,828],{"id":827},"what-are-the-limitations-of-alternative-data","What are the limitations of alternative data?",[35,830,831],{},"The main limitation of alternative data is that it is unstructured, unaudited and self-selected, so it supports a qualitative judgement but not a quantitative one. Every source listed above has the same three weaknesses.",[44,833,834,840,846],{},[47,835,836,839],{},[287,837,838],{},"Selection bias."," People who write reviews, join communities or rate an employer are not a random sample of customers or staff.",[47,841,842,845],{},[287,843,844],{},"No units."," Search interest and traffic estimates are relative indices, not revenue, so they cannot be converted into a forecast.",[47,847,848,851],{},[287,849,850],{},"Coverage gaps."," Alternative data is abundant for consumer businesses and thin for industrial, B2B and financial companies.",[35,853,854,855,859],{},"Alternative data also says nothing about valuation, balance sheet strength or how well management allocates capital. A company can have excellent reviews and a poor return on the capital it employs, which is why alternative data belongs alongside financial measures such as ",[219,856,858],{"href":857},"/blog/roce/","return on capital employed"," rather than in place of them.",[39,861,320],{"id":319},[140,863,865],{"id":864},"is-alternative-data-legal-for-individual-investors-to-use","Is alternative data legal for individual investors to use?",[35,867,868],{},"Publicly available alternative data, such as product reviews, job postings, app rankings and search trend data, is legal to use because anyone can access it. What is not legal is trading on material non-public information obtained from an insider. The distinction is the source, not the format: a public review is research, a leaked internal report is not.",[140,870,872],{"id":871},"how-much-time-should-you-spend-on-alternative-data-when-researching-a-company","How much time should you spend on alternative data when researching a company?",[35,874,875,876,880],{},"Alternative data is best used to test a specific question rather than browsed open-endedly, since the volume available is effectively unlimited. Decide what would change your mind about the business first, then look for the sources that address it. Research capacity is one of the real constraints on ",[219,877,879],{"href":878},"/blog/how-many-stocks-should-i-own/","how many stocks you can own"," and follow properly.",[140,882,884],{"id":883},"can-alternative-data-predict-a-companys-earnings","Can alternative data predict a company's earnings?",[35,886,887],{},"Alternative data can indicate the direction of a business before it is reported, but individual investors cannot use it to predict earnings with any precision. The free sources give relative indices and unstructured opinion, not the sampled transaction panels that institutional buyers pay for. Treat it as a way to confirm or challenge a thesis, not as a forecast.",[140,889,891],{"id":890},"what-is-scuttlebutt-in-investing","What is scuttlebutt in investing?",[35,893,894],{},"Scuttlebutt is Philip Fisher's term for researching a company by gathering opinions from the people around it: customers, suppliers, competitors, former employees and industry participants. Fisher described doing it in person. Product reviews, industry forums and employee review sites are the modern, remote equivalent of the same practice.",[39,896,898],{"id":897},"how-to-track-the-companies-you-research-in-portseido","How to track the companies you research in Portseido",[35,900,901],{},"Portseido is a portfolio tracker for investors who research their own holdings and want a single record of what those holdings actually returned. It consolidates positions across brokers and currencies, tracks cost basis, records dividends and yield on cost, calculates time-weighted and money-weighted returns, and reports allocation and drawdown. Benchmarking a portfolio against indices and ETFs is what closes the loop on research: it tells you whether the work you did on individual companies beat simply owning the index.",[35,903,904,905],{},"Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations, and it does not screen or source alternative data for you. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,906,363],{"href":361,"rel":907},[240],[35,909,910],{},"If you find the list helpful, share it with fellow investors, and if there are other tools you think belong on it, let me know in the comments.",{"title":400,"searchDepth":401,"depth":401,"links":912},[913,914,915,916,917,918,919,920,921,922,923,924,930],{"id":41,"depth":404,"text":42},{"id":476,"depth":404,"text":477},{"id":494,"depth":404,"text":495},{"id":598,"depth":404,"text":599},{"id":632,"depth":404,"text":633},{"id":682,"depth":404,"text":683},{"id":714,"depth":404,"text":715},{"id":739,"depth":404,"text":740},{"id":773,"depth":404,"text":774},{"id":796,"depth":404,"text":797},{"id":827,"depth":404,"text":828},{"id":319,"depth":404,"text":320,"children":925},[926,927,928,929],{"id":864,"depth":401,"text":865},{"id":871,"depth":401,"text":872},{"id":883,"depth":401,"text":884},{"id":890,"depth":401,"text":891},{"id":897,"depth":404,"text":898},"Alternative data is company information from non-traditional sources: product reviews, employee reviews, job postings, search trends and web traffic.",{},"/blog/alternative-data-for-investing","2022-07-04",{"title":441,"description":931},"blog/alternative-data-for-investing","ek_DitPbVSeHWU5Ou2CMs7iHHs1oBtdyrBT_BXBvq4M",{"id":939,"title":940,"body":941,"description":1330,"extension":428,"meta":1331,"navigation":430,"path":1332,"publishedAt":1333,"seo":1334,"seo_description":434,"seo_title":434,"social_image":1023,"stem":1335,"updatedAt":436,"__hash__":1336},"blog/blog/another-hard-part-of-investing.md","Another hard part of investing",{"type":7,"value":942,"toc":1313},[943,964,969,976,978,995,999,1002,1005,1009,1012,1025,1033,1037,1040,1053,1107,1110,1123,1127,1130,1174,1177,1190,1193,1197,1200,1213,1221,1225,1228,1241,1244,1248,1251,1258,1267,1269,1273,1276,1280,1283,1287,1290,1294,1297,1301,1304,1310],[35,944,945,946,951,952,957,958,963],{},"As an investor, I always find ",[219,947,950],{"href":948,"rel":949},"https://www.oaktreecapital.com/insights",[240],"Howard Marks' memo"," a great source of learning. Marks is a value investor and cofounder of Oaktree Capital Management, and he periodically writes a short memo (also available in ",[219,953,956],{"href":954,"rel":955},"https://podcasts.apple.com/us/podcast/the-memo-by-howard-marks/id1521551570",[240],"podcast",") reflecting his views on the investment landscape. One of them, titled ",[219,959,962],{"href":960,"rel":961},"https://www.oaktreecapital.com/docs/default-source/memos/selling-out.pdf?sfvrsn=5a4f7166_11",[240],"“Selling out”",", discusses when to sell an investment, and quotes his son Andrew:",[35,965,966],{},[448,967,968],{},"“​​When you look at the chart for something that's gone up and to the right for 20 years, think about all the times a holder would have had to convince himself not to sell.”",[35,970,971,972,975],{},"The example raised was ",[287,973,974],{},"$AMZN",", whose return to date was more than 1,600x. Buying such a stock over thousands of other alternatives is not easy, and even if you had bought it, holding it over the long term is not easy either. This article looks back into the past and simulates what it would actually have felt like to buy and hold that multi-bagger.",[39,977,42],{"id":41},[44,979,980,983,986,989,992],{},[47,981,982],{},"A $10,000 investment in AMZN at the close of its first trading day would have been worth $16 million as of March 24th, 2022, a 34.94% annualized return over 25 years.",[47,984,985],{},"Holding AMZN through that period required surviving a -94.40% drawdown during the dot-com crash, in which the position fell from $544,324 to $30,459.",[47,987,988],{},"Recovering from that dot-com drawdown took 3,619 days, or ten full years, during which the position was underwater the entire time.",[47,990,991],{},"AMZN reached a 40% drawdown four times within its first three years, before the crash that produced the -94.40% fall.",[47,993,994],{},"The difficulty of a multi-bagger is not identifying it but continuing to hold it, because the largest drawdowns arrive after the largest gains.",[39,996,998],{"id":997},"why-is-holding-a-multi-bagger-stock-so-hard","Why is holding a multi-bagger stock so hard?",[35,1000,1001],{},"Holding a multi-bagger is hard because the same volatility that produces the extraordinary return also produces repeated, severe drawdowns, and each one asks the holder to decide again whether to sell. A stock that rises 1,600x does not do it smoothly; it does it through a sequence of falls that would each be enough to end most investors' conviction.",[35,1003,1004],{},"The chart of a long-term winner hides this completely. Drawn from bottom left to top right over 25 years, the drops compress into rounding errors. Lived through in real time, at the actual position sizes, each one is months or years of watching capital disappear. The sections below zoom in on those moments in AMZN's history.",[39,1006,1008],{"id":1007},"how-did-a-10000-investment-in-amzn-perform-over-25-years","How did a $10,000 investment in AMZN perform over 25 years?",[35,1010,1011],{},"A $10,000 investment in AMZN at the close of its first trading day would be worth $16 million as of March 24th, 2022, a return of 166,642.85% (1,666 baggers) or 34.94% annualized over 25 years.",[10,1013,12,1014,12,1017,12,1020],{},[14,1015],{"srcSet":1016,"type":17},"/blog_images/another-hard-part-of-investing/AMZN-returns-1600x.avif",[14,1018],{"srcSet":1019,"type":21},"/blog_images/another-hard-part-of-investing/AMZN-returns-1600x.webp",[23,1021],{"alt":1022,"src":1023,"style":624,"width":625,"height":1024,"decoding":30},"1600-bagger AMZN performance","/blog_images/another-hard-part-of-investing/AMZN-returns-1600x.png",628,[35,1026,1027,1028,1032],{},"Over the same 25-year period, the S&P 500 returned 6.97% ",[219,1029,1031],{"href":1030},"/blog/how-to-calculate-portfolio-return/","annualized",". AMZN beat the index by a light year, which is exactly why the chart above looks so appealing and so misleading. What follows zooms in on each milestone of that simulated portfolio, with one question attached to each: under the same circumstances, would you still have held?",[39,1034,1036],{"id":1035},"what-did-the-first-year-of-holding-amzn-look-like","What did the first year of holding AMZN look like?",[35,1038,1039],{},"The first year of holding AMZN began with a -28.78% loss in seven days and ended with the position up tenfold. Almost every emotional test an investor can face arrived inside twelve months.",[10,1041,12,1042,12,1045,12,1048],{},[14,1043],{"srcSet":1044,"type":17},"/blog_images/another-hard-part-of-investing/amzn-7-days-performance.avif",[14,1046],{"srcSet":1047,"type":21},"/blog_images/another-hard-part-of-investing/amzn-7-days-performance.webp",[23,1049],{"alt":1050,"src":1051,"style":624,"width":625,"height":1052,"loading":670,"decoding":30},"AMZN 7-day performance","/blog_images/another-hard-part-of-investing/amzn-7-days-performance.png",467,[80,1054,1055,1065],{},[83,1056,1057],{},[86,1058,1059,1062],{},[89,1060,1061],{},"Time since purchase",[89,1063,1064],{},"What happened to the $10,000 position",[96,1066,1067,1075,1083,1091,1099],{},[86,1068,1069,1072],{},[101,1070,1071],{},"1 week",[101,1073,1074],{},"Down -28.78%, to $7,122",[86,1076,1077,1080],{},[101,1078,1079],{},"2 months",[101,1081,1082],{},"Breaks even for the first time",[86,1084,1085,1088],{},[101,1086,1087],{},"4 months",[101,1089,1090],{},"Doubles",[86,1092,1093,1096],{},[101,1094,1095],{},"10 months",[101,1097,1098],{},"Triples",[86,1100,1101,1104],{},[101,1102,1103],{},"1 year",[101,1105,1106],{},"Turns into a 10-bagger",[35,1108,1109],{},"Losing nearly 30% in the first week is where most positions get cut, and it is worth noting that nothing about the business explained the move. An investor who sold at $7,122 to protect capital made a decision that looked prudent at the time and forfeited a 1,666-bagger.",[10,1111,12,1112,12,1115,12,1118],{},[14,1113],{"srcSet":1114,"type":17},"/blog_images/another-hard-part-of-investing/amzn-1-year-performance.avif",[14,1116],{"srcSet":1117,"type":21},"/blog_images/another-hard-part-of-investing/amzn-1-year-performance.webp",[23,1119],{"alt":1120,"src":1121,"style":624,"width":625,"height":1122,"loading":670,"decoding":30},"AMZN 1-year performance","/blog_images/another-hard-part-of-investing/amzn-1-year-performance.png",460,[39,1124,1126],{"id":1125},"how-volatile-was-amzn-during-the-run-up-to-the-dot-com-bubble","How volatile was AMZN during the run-up to the dot-com bubble?",[35,1128,1129],{},"During the run-up to the dot-com bubble, AMZN hit a 40% drawdown four separate times in under three years, each one deeper than the last, while still setting new all-time highs in between. The position was simultaneously one of the best investments available and a repeated source of large losses.",[80,1131,1132,1140],{},[83,1133,1134],{},[86,1135,1136,1138],{},[89,1137,1061],{},[89,1139,1064],{},[96,1141,1142,1150,1158,1166],{},[86,1143,1144,1147],{},[101,1145,1146],{},"1 year 4 months",[101,1148,1149],{},"Down -47.67% from its high a quarter earlier",[86,1151,1152,1155],{},[101,1153,1154],{},"1 year 8 months",[101,1156,1157],{},"Grew 7.59 times from that drawdown (+4,609.82% since inception)",[86,1159,1160,1163],{},[101,1161,1162],{},"2 years 3 months",[101,1164,1165],{},"Down -59.31% from its peak",[86,1167,1168,1171],{},[101,1169,1170],{},"2 years 8 months",[101,1172,1173],{},"New all-time high of $544,324 (+5,343.24% since inception)",[35,1175,1176],{},"By the 2-year-8-month mark, a 40% drawdown had become familiar, having occurred four times with each one larger than the one before. The largest drawdown to date was -59.31%.",[10,1178,12,1179,12,1182,12,1185],{},[14,1180],{"srcSet":1181,"type":17},"/blog_images/another-hard-part-of-investing/amzn-1999-crash-drawdown.avif",[14,1183],{"srcSet":1184,"type":21},"/blog_images/another-hard-part-of-investing/amzn-1999-crash-drawdown.webp",[23,1186],{"alt":1187,"src":1188,"style":624,"width":625,"height":1189,"loading":670,"decoding":30},"AMZN 1999 crash's drawdown","/blog_images/another-hard-part-of-investing/amzn-1999-crash-drawdown.png",471,[35,1191,1192],{},"Getting used to 40% falls is itself a trap, because it sets the expectation that the next one will also recover quickly. The next one did not.",[39,1194,1196],{"id":1195},"how-far-did-amzn-fall-in-the-dot-com-crash","How far did AMZN fall in the dot-com crash?",[35,1198,1199],{},"AMZN fell 94.40% from its high in the dot-com crash, taking the simulated position from $544,324 down to $30,459 in less than two years. That is a loss of more than half a million dollars of paper wealth from an original stake of $10,000.",[10,1201,12,1202,12,1205,12,1208],{},[14,1203],{"srcSet":1204,"type":17},"/blog_images/another-hard-part-of-investing/amzn-drawdown-during-dotcom-crash.avif",[14,1206],{"srcSet":1207,"type":21},"/blog_images/another-hard-part-of-investing/amzn-drawdown-during-dotcom-crash.webp",[23,1209],{"alt":1210,"src":1211,"style":624,"width":625,"height":1212,"loading":670,"decoding":30},"AMZN's drawdown during Dotcom bubble burst","/blog_images/another-hard-part-of-investing/amzn-drawdown-during-dotcom-crash.png",463,[35,1214,1215,1216,1220],{},"The recovery was slower than the fall. Eight years after the 1999 high, the portfolio had regained momentum and was back to $475,541, still short of its old peak. It took 10 full years to recover the loss completely, 3,619 days to be precise. ",[219,1217,1219],{"href":1218},"/blog/drawdown-why-investors-should-track-it/","Maximum drawdown, the largest peak-to-trough fall a portfolio suffers",", is the number that captures this experience, and a decade underwater is a very different thing from a -94.40% figure on a page.",[39,1222,1224],{"id":1223},"what-happened-to-amzn-after-it-recovered","What happened to AMZN after it recovered?",[35,1226,1227],{},"After AMZN recovered its dot-com losses, the pattern repeated for another 12 years, with only two down years and a series of roughly -30% drawdowns in between. The falls were less extreme than in 2001, but they were regular.",[10,1229,12,1230,12,1233,12,1236],{},[14,1231],{"srcSet":1232,"type":17},"/blog_images/another-hard-part-of-investing/amzn-performance-to-date.avif",[14,1234],{"srcSet":1235,"type":21},"/blog_images/another-hard-part-of-investing/amzn-performance-to-date.webp",[23,1237],{"alt":1238,"src":1239,"style":624,"width":625,"height":1240,"loading":670,"decoding":30},"AMZN performance to date","/blog_images/another-hard-part-of-investing/amzn-performance-to-date.png",264,[35,1242,1243],{},"The portfolio went up, made several -30% drawdowns, recovered, and repeated. Each cycle asked the same question the first week had asked, only with far more money on the table, which is what makes holding progressively harder rather than easier as a position grows.",[39,1245,1247],{"id":1246},"what-does-the-amzn-case-teach-investors-about-holding-winners","What does the AMZN case teach investors about holding winners?",[35,1249,1250],{},"The AMZN case shows that the overlooked skill in investing is not selection but retention, because the drawdowns get larger in absolute terms exactly as the position becomes more valuable. Buying such an asset early was already difficult, given that many $AMZN competitors from the same era are long gone. Holding it after watching it double, triple and morph into a 10-bagger or even a 100-bagger may be harder still.",[35,1252,1253,1254,1257],{},"Two practical consequences follow. First, position size should be set so that a -90% drawdown in one holding does not end the portfolio, which is a question about ",[219,1255,1256],{"href":878},"how many stocks you own and how much weight each carries",". Second, conviction has to rest on something written down before the fall, because during a ten-year recovery there is no evidence available that the thesis is still working.",[35,1259,1260,1261,1266],{},"Investing can be complex, but it is one of the areas where many learn and grow from experience. ",[219,1262,1265],{"href":1263,"rel":1264},"https://lifemathmoney.com/two-big-investing-lessons-i-learned-cheaply/",[240],"While mistakes are part of the journey",", managing your portfolio should not be one of them.",[39,1268,320],{"id":319},[140,1270,1272],{"id":1271},"what-is-a-multi-bagger-stock","What is a multi-bagger stock?",[35,1274,1275],{},"A multi-bagger is a stock that returns several times the amount originally invested, with the multiple stated as the number of \"baggers\". A stock that turns $10,000 into $100,000 is a 10-bagger. The term was popularised by Peter Lynch, and it describes an outcome rather than a category, since a multi-bagger is only identifiable in hindsight.",[140,1277,1279],{"id":1278},"how-long-can-it-take-a-stock-to-recover-from-a-large-drawdown","How long can it take a stock to recover from a large drawdown?",[35,1281,1282],{},"Recovery from a severe drawdown can take a decade or more. AMZN's -94.40% dot-com fall took 3,619 days to recover fully, and the position was still below its old high eight years after the peak. The mathematics are unforgiving: a 90% fall requires a 900% gain simply to return to break-even.",[140,1284,1286],{"id":1285},"should-you-sell-a-stock-after-it-has-multiplied-several-times","Should you sell a stock after it has multiplied several times?",[35,1288,1289],{},"Selling a large winner is a position-sizing decision rather than a valuation call, and the honest answer depends on what the position now represents in your portfolio. A holding that has grown to half your capital carries concentration risk that had nothing to do with the original decision to buy it. Trimming to a size you can survive being wrong about is different from selling out.",[140,1291,1293],{"id":1292},"does-drawdown-matter-if-you-never-sell","Does drawdown matter if you never sell?",[35,1295,1296],{},"Drawdown matters even for a permanent holder, because it measures the pressure to sell rather than the loss realised. The reason a -94.40% fall is significant is not the paper loss but that almost nobody holds through it. Tracking drawdown tells you in advance how much volatility a portfolio has historically demanded of its owner.",[39,1298,1300],{"id":1299},"how-to-track-long-term-holdings-and-drawdown-in-portseido","How to track long-term holdings and drawdown in Portseido",[35,1302,1303],{},"Portseido is a portfolio tracker for investors holding positions over long horizons. It consolidates holdings across brokers and currencies, tracks cost basis from the original purchase, calculates time-weighted and money-weighted returns, and reports drawdown and allocation, so you can see both what a long-held position has returned and how far it fell along the way. It also benchmarks the portfolio against indices and ETFs, which is how you find out whether holding through a drawdown was actually rewarded.",[35,1305,1306,1307],{},"Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,1308,363],{"href":361,"rel":1309},[240],[35,1311,1312],{},"The purpose of this article is to learn from past investment cases. Nothing contained in this article should be construed as investment advice.",{"title":400,"searchDepth":401,"depth":401,"links":1314},[1315,1316,1317,1318,1319,1320,1321,1322,1323,1329],{"id":41,"depth":404,"text":42},{"id":997,"depth":404,"text":998},{"id":1007,"depth":404,"text":1008},{"id":1035,"depth":404,"text":1036},{"id":1125,"depth":404,"text":1126},{"id":1195,"depth":404,"text":1196},{"id":1223,"depth":404,"text":1224},{"id":1246,"depth":404,"text":1247},{"id":319,"depth":404,"text":320,"children":1324},[1325,1326,1327,1328],{"id":1271,"depth":401,"text":1272},{"id":1278,"depth":401,"text":1279},{"id":1285,"depth":401,"text":1286},{"id":1292,"depth":401,"text":1293},{"id":1299,"depth":404,"text":1300},"A $10,000 investment in AMZN became $16 million, but only after a -94.40% drawdown and a ten-year recovery. Holding a multi-bagger is the hard part.",{},"/blog/another-hard-part-of-investing","2022-07-05",{"title":940,"description":1330},"blog/another-hard-part-of-investing","l9UGiX-BM9YtYIhBBCiH9MlQQ31VihBgx3Yq9TUZk_4",{"id":1338,"title":1339,"body":1340,"description":1832,"extension":428,"meta":1833,"navigation":430,"path":1834,"publishedAt":1835,"seo":1836,"seo_description":434,"seo_title":434,"social_image":1353,"stem":1837,"updatedAt":436,"__hash__":1838},"blog/blog/asset-allocation.md","What is Asset Allocation? Why is it important to portfolio?",{"type":7,"value":1341,"toc":1812},[1342,1357,1360,1362,1379,1383,1391,1394,1397,1401,1404,1476,1481,1486,1491,1497,1503,1507,1510,1516,1522,1528,1532,1535,1555,1558,1565,1569,1572,1633,1637,1640,1648,1652,1655,1662,1666,1669,1672,1686,1699,1702,1706,1709,1757,1765,1767,1771,1774,1778,1781,1785,1792,1796,1799,1803,1806],[10,1343,12,1344,12,1347,12,1350],{},[14,1345],{"srcSet":1346,"type":17},"/blog_images/asset-allocation/asset-allocation.avif",[14,1348],{"srcSet":1349,"type":21},"/blog_images/asset-allocation/asset-allocation.webp",[23,1351],{"alt":1352,"src":1353,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":1356},"Portfolio and Asset Allocation","/blog_images/asset-allocation/asset-allocation.png","max-width:100%;width:600px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",298,[33],[35,1358,1359],{},"Asset allocation is the decision about how much of your money sits in stocks, how much in bonds, and how much in everything else. It is made before you pick a single ticker, and it sets the range of outcomes your portfolio can produce. This guide covers what asset allocation is, the main asset classes, how to choose an allocation, and how to keep one on track.",[39,1361,42],{"id":41},[44,1363,1364,1367,1370,1373,1376],{},[47,1365,1366],{},"Asset allocation is the distribution of a portfolio across asset classes such as stocks, bonds, real estate, cash and alternatives, chosen to fit an investor's goals and risk tolerance.",[47,1368,1369],{},"Asset allocation matters because asset classes respond differently to growth, inflation and interest rates, so mixing them limits the damage any single economic surprise can do.",[47,1371,1372],{},"The five primary asset classes used in asset allocation are stocks, bonds, real estate, cash and cash equivalents, and alternative investments.",[47,1374,1375],{},"An asset allocation is chosen from three inputs: the time horizon until you need the money, your tolerance for seeing the portfolio fall, and the return you need to reach your goal.",[47,1377,1378],{},"Asset allocation drifts as markets move, so a portfolio set to 60% stocks and 40% bonds will not stay there without periodic rebalancing.",[39,1380,1382],{"id":1381},"what-is-asset-allocation","What is asset allocation?",[35,1384,1385,1386,1390],{},"Asset allocation is the distribution of an investment portfolio across different asset classes, chosen to fit an investor's ",[219,1387,1389],{"href":1388},"/blog/good-financial-goals/","financial goals"," and stay within their risk tolerance. Each asset class carries its own risk and return characteristics, so the mix determines how the portfolio behaves.",[35,1392,1393],{},"An asset allocation is expressed in percentages of total portfolio value. A portfolio described as \"70/30\" holds 70% of its value in stocks and 30% in bonds. Those percentages are the allocation; the individual securities inside each slice are a separate decision.",[35,1395,1396],{},"Asset allocation operates one level above stock picking. Choosing to hold 80% stocks rather than 40% changes the portfolio's expected return and its worst-case loss far more than swapping one large-cap stock for another. That is why allocation is normally settled first and security selection second.",[39,1398,1400],{"id":1399},"what-are-the-main-asset-classes","What are the main asset classes?",[35,1402,1403],{},"The five primary asset classes are stocks, bonds, real estate, cash and cash equivalents, and alternative investments. Each behaves differently in a given economic environment, which is what makes combining them useful.",[80,1405,1406,1419],{},[83,1407,1408],{},[86,1409,1410,1413,1416],{},[89,1411,1412],{},"Asset class",[89,1414,1415],{},"What it is",[89,1417,1418],{},"Typical role in an allocation",[96,1420,1421,1432,1443,1454,1465],{},[86,1422,1423,1426,1429],{},[101,1424,1425],{},"Stocks (equity)",[101,1427,1428],{},"Ownership in a company",[101,1430,1431],{},"Long-term growth, highest volatility",[86,1433,1434,1437,1440],{},[101,1435,1436],{},"Bonds",[101,1438,1439],{},"Debt issued by governments or corporations",[101,1441,1442],{},"Income and ballast when stocks fall",[86,1444,1445,1448,1451],{},[101,1446,1447],{},"Real estate",[101,1449,1450],{},"Physical property or REITs",[101,1452,1453],{},"Income plus some inflation sensitivity",[86,1455,1456,1459,1462],{},[101,1457,1458],{},"Cash and equivalents",[101,1460,1461],{},"Money market funds, short-term CDs, Treasury bills",[101,1463,1464],{},"Liquidity and safety, lowest return",[86,1466,1467,1470,1473],{},[101,1468,1469],{},"Alternatives",[101,1471,1472],{},"Commodities, hedge funds, private equity",[101,1474,1475],{},"Diversification beyond traditional markets",[35,1477,1478,1480],{},[287,1479,1425],{}," are ownership in a company, classified by market capitalisation, listing market, industry and sector — large-cap, mid-cap, small-cap, emerging market and so on. Stocks carry the highest volatility of the primary asset classes and, historically, the highest long-run return.",[35,1482,1483,1485],{},[287,1484,1436],{}," are debt securities issued by governments or corporations, categorised by issuer, maturity and credit rating — corporate, government and municipal bonds among them. Bonds pay a defined stream of interest, which is why they are used to steady a portfolio that also holds stocks.",[35,1487,1488,1490],{},[287,1489,1447],{}," means physical property or Real Estate Investment Trusts (REITs), which give exposure to property markets without direct ownership. It typically generates rental income and responds to interest rates and inflation differently from stocks.",[35,1492,1493,1496],{},[287,1494,1495],{},"Cash and cash equivalents",", such as money market funds or short-term certificates of deposit (CDs), provide liquidity and safety. Cash is what you draw on for near-term spending, though inflation erodes its purchasing power over time.",[35,1498,1499,1502],{},[287,1500,1501],{},"Alternative investments"," include hedge funds, private equity and commodities. Their returns are driven by different factors, which adds diversification, but they are usually less liquid, harder to value and higher risk.",[39,1504,1506],{"id":1505},"why-is-asset-allocation-important-to-investors","Why is asset allocation important to investors?",[35,1508,1509],{},"Asset allocation is important because it determines both the return a portfolio can realistically produce and the loss its owner has to be able to sit through. Three reasons stand out.",[35,1511,1512,1515],{},[287,1513,1514],{},"Asset allocation fits individual needs."," Investors have different goals and different levels of risk tolerance, so there is no one-size-fits-all portfolio. The same universe of stocks and bonds can be assembled into a portfolio suited to a 25-year-old saving for retirement or a 68-year-old already drawing an income from it.",[35,1517,1518,1521],{},[287,1519,1520],{},"Asset allocation balances risk and reward."," Retirees often prioritise capital preservation over high returns, because they have limited years of earnings left to replace a loss. Younger investors with decades ahead can hold a higher share of stocks, since they have time to recover from a fall.",[35,1523,1524,1527],{},[287,1525,1526],{},"Asset allocation manages economic surprises."," Rising inflation hurts long-dated bonds while commodities may benefit; a growth slowdown hurts stocks while government bonds often rally. Balancing assets by these structural characteristics limits the impact of any single economic surprise.",[39,1529,1531],{"id":1530},"how-do-you-choose-an-asset-allocation","How do you choose an asset allocation?",[35,1533,1534],{},"An asset allocation is chosen from three inputs: your time horizon, your risk tolerance, and the return your goal actually requires. Work through them in that order, because the horizon constrains everything else.",[178,1536,1537,1543,1549],{},[47,1538,1539,1542],{},[287,1540,1541],{},"Time horizon."," How many years until you need the money? A goal 25 years away can carry far more equity than one three years away, because there is time for a fall to reverse.",[47,1544,1545,1548],{},[287,1546,1547],{},"Risk tolerance."," How large a fall can you hold through without selling? An allocation you abandon in a downturn is worse than a more conservative one you keep.",[47,1550,1551,1554],{},[287,1552,1553],{},"Required return."," What return does your goal need? If a conservative allocation cannot get you there, the honest fix is usually saving more, not adding risk you cannot tolerate.",[35,1556,1557],{},"A common rule of thumb is to hold a percentage of stocks equal to roughly 110 minus your age, with the rest in bonds and cash. Treat it as a starting point rather than an answer: it knows nothing about your job security, other income, or how you behaved the last time markets fell.",[35,1559,1560,1561,1564],{},"Note that the number of individual securities you own is a separate question from allocation. Two portfolios can both be 80% stocks while one holds a single index fund and the other holds forty names, which is why ",[219,1562,1563],{"href":878},"how many stocks you should own"," is worth deciding on its own terms.",[39,1566,1568],{"id":1567},"what-are-some-examples-of-asset-allocation-models","What are some examples of asset allocation models?",[35,1570,1571],{},"Well-known asset allocation models range from a simple stock-and-bond split to portfolios deliberately balanced across economic environments. Four are widely referenced.",[80,1573,1574,1587],{},[83,1575,1576],{},[86,1577,1578,1581,1584],{},[89,1579,1580],{},"Model",[89,1582,1583],{},"Rough shape",[89,1585,1586],{},"Idea behind it",[96,1588,1589,1600,1611,1622],{},[86,1590,1591,1594,1597],{},[101,1592,1593],{},"60/40",[101,1595,1596],{},"60% stocks, 40% bonds",[101,1598,1599],{},"A long-standing default balance of growth and ballast",[86,1601,1602,1605,1608],{},[101,1603,1604],{},"Buffett's 90/10",[101,1606,1607],{},"90% low-cost S&P 500 index fund, 10% short-term government bonds",[101,1609,1610],{},"Maximum equity exposure with a small liquidity buffer",[86,1612,1613,1616,1619],{},[101,1614,1615],{},"Three-fund portfolio",[101,1617,1618],{},"Domestic stocks, international stocks, bonds",[101,1620,1621],{},"Broad global coverage in three low-cost funds",[86,1623,1624,1627,1630],{},[101,1625,1626],{},"All Weather",[101,1628,1629],{},"Stocks, long and intermediate bonds, gold and commodities",[101,1631,1632],{},"Balanced so no single economic environment dominates",[140,1634,1636],{"id":1635},"ray-dalios-all-weather-portfolio","Ray Dalio's All Weather Portfolio",[35,1638,1639],{},"The All Weather Portfolio is an asset allocation designed so that no single economic environment — inflation, deflation, growth or contraction — dominates the portfolio's outcome. It spreads capital across stocks, long-dated and intermediate bonds, gold and commodities, weighted by how each responds to those environments rather than by expected return.",[35,1641,1642,1643],{},"\"Launched in 1996, All Weather was originally created for Ray's trust assets. It is predicated on the notion that asset classes react in understandable ways based on the relationship of their cash flows to the economic environment. By balancing assets based on these structural characteristics the impact of economic surprises can be minimized. Market participants might be surprised by inflation shifts or a growth bust and All Weather would chug along, providing attractive, relatively stable returns.\" - ",[219,1644,1647],{"href":1645,"target":1646},"https://www.bridgewater.com/research-and-insights/the-all-weather-story","_blank","Bridgewater Research & Insights",[140,1649,1651],{"id":1650},"warren-buffetts-9010-investing-strategy","Warren Buffett's 90/10 Investing Strategy",[35,1653,1654],{},"Warren Buffett's 90/10 strategy is an asset allocation of 90% in a low-cost S&P 500 index fund and 10% in short-term government bonds, which he set out in the 2013 Berkshire Hathaway annual report as the instruction for a trust left to his wife.",[35,1656,1657,1658],{},"\"My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I've laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife's benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.\" - ",[219,1659,1661],{"href":1660,"target":1646},"https://www.berkshirehathaway.com/2013ar/2013ar.pdf","Berkshire Hathaway 2013 Annual Report",[39,1663,1665],{"id":1664},"how-does-an-asset-allocation-drift-and-when-should-you-rebalance","How does an asset allocation drift, and when should you rebalance?",[35,1667,1668],{},"An asset allocation drifts because asset classes grow at different rates, so the winners quietly take up more of the portfolio than you chose. A portfolio set to 60% stocks and 40% bonds becomes roughly 65/35 after a year in which stocks rise 20% and bonds are flat — a riskier portfolio than the one you signed up for.",[35,1670,1671],{},"Rebalancing is the act of selling what has grown past its target and buying what has fallen below it, returning the portfolio to its intended allocation. Two conventions are common:",[44,1673,1674,1680],{},[47,1675,1676,1679],{},[287,1677,1678],{},"Calendar rebalancing."," Check and reset the allocation on a fixed schedule, such as annually or semi-annually.",[47,1681,1682,1685],{},[287,1683,1684],{},"Threshold rebalancing."," Reset only when an asset class drifts more than a set band, commonly 5 percentage points, away from its target.",[35,1687,1688,1689,1693,1694,1698],{},"Rebalancing has a cost: every trade carries fees, and selling appreciated positions in a taxable account realises capital gains. Frequent resets therefore raise ",[219,1690,1692],{"href":1691},"/blog/portfolio-turnover/","portfolio turnover",", which drags on after-tax returns, so most long-term investors rebalance no more than once or twice a year. Our ",[219,1695,1697],{"href":1696},"/tools/portfolio-rebalancing-calculator/","free portfolio rebalancing calculator"," works out the trades needed to return a portfolio to its target weights.",[35,1700,1701],{},"The prerequisite for rebalancing is knowing your current allocation, which is harder than it sounds when holdings sit at three brokers in two currencies. Portseido consolidates holdings across brokers and currencies and shows the asset allocation breakdown of the combined portfolio, so the drift is visible without maintaining a spreadsheet.",[39,1703,1705],{"id":1704},"what-is-the-difference-between-asset-allocation-and-diversification","What is the difference between asset allocation and diversification?",[35,1707,1708],{},"Asset allocation decides how much goes into each asset class; diversification decides how widely you spread the money inside each class. They are related but not the same decision.",[80,1710,1711,1723],{},[83,1712,1713],{},[86,1714,1715,1717,1720],{},[89,1716],{},[89,1718,1719],{},"Asset allocation",[89,1721,1722],{},"Diversification",[96,1724,1725,1736,1746],{},[86,1726,1727,1730,1733],{},[101,1728,1729],{},"Question it answers",[101,1731,1732],{},"How much in stocks vs bonds vs cash?",[101,1734,1735],{},"How many holdings, across which sectors and regions?",[86,1737,1738,1741,1743],{},[101,1739,1740],{},"Level it works at",[101,1742,1412],{},[101,1744,1745],{},"Individual security",[86,1747,1748,1751,1754],{},[101,1749,1750],{},"Main risk it addresses",[101,1752,1753],{},"Exposure to one type of asset",[101,1755,1756],{},"Exposure to one company or sector",[35,1758,1759,1760,1764],{},"A portfolio can be well allocated and badly diversified at the same time: 70% stocks and 30% bonds looks reasonable until you find the entire equity slice sits in three semiconductor companies. Checking the ",[219,1761,1763],{"href":1762},"/blog/portfolio-weight/","portfolio weight of every position"," alongside the asset class split is what catches that.",[39,1766,320],{"id":319},[140,1768,1770],{"id":1769},"does-asset-allocation-change-with-age","Does asset allocation change with age?",[35,1772,1773],{},"Yes, for most investors. As the time horizon to a goal shortens, the ability to recover from a large fall shrinks, so the share held in stocks is usually reduced in favour of bonds and cash. Target-date funds automate this by following a preset glide path, moving from stock-heavy to bond-heavy as the target year approaches.",[140,1775,1777],{"id":1776},"how-many-asset-classes-do-i-need-in-a-portfolio","How many asset classes do I need in a portfolio?",[35,1779,1780],{},"Two are enough to constitute an asset allocation: stocks and bonds, which is what the classic 60/40 portfolio holds. Adding real estate, commodities or cash can smooth returns further, but each addition brings complexity and often higher fees. Most individual investors are well served by two to four asset classes they actually understand.",[140,1782,1784],{"id":1783},"does-asset-allocation-apply-to-a-portfolio-held-across-several-brokers","Does asset allocation apply to a portfolio held across several brokers?",[35,1786,1787,1788,733],{},"Yes. Asset allocation is a property of your total wealth, not of any one account, so a 60/40 target only means something when every account is counted together. An investor holding bonds at one broker and stocks at another may be far from their target allocation while each individual account looks reasonable, which is one of the real costs of ",[219,1789,1791],{"href":1790},"/blog/should-you-have-multiple-investment-accounts/","holding multiple investment accounts",[140,1793,1795],{"id":1794},"is-cash-part-of-an-asset-allocation","Is cash part of an asset allocation?",[35,1797,1798],{},"Cash is a genuine asset class within an asset allocation, not just uninvested money. It provides liquidity for near-term spending and a buffer that avoids forced selling during a downturn. Its cost is real: cash typically returns less than inflation over long periods, so a large permanent cash allocation reduces long-run purchasing power.",[39,1800,1802],{"id":1801},"how-to-track-asset-allocation-in-portseido","How to track asset allocation in Portseido",[35,1804,1805],{},"Portseido is a portfolio tracker that shows the asset allocation of your whole portfolio, not one account at a time. It consolidates holdings across multiple brokers and currencies, breaks the combined portfolio down by allocation, tracks cost basis, dividends and yield on cost, calculates time-weighted and money-weighted returns, and reports drawdown so you can see what a given allocation actually put you through. You can import transactions from brokers or from a CSV, and benchmark the result against indices and ETFs.",[35,1807,1808,1809],{},"It suits self-directed investors whose money is spread across more than one platform. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations or set an allocation for you. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,1810,363],{"href":361,"rel":1811},[240],{"title":400,"searchDepth":401,"depth":401,"links":1813},[1814,1815,1816,1817,1818,1819,1823,1824,1825,1831],{"id":41,"depth":404,"text":42},{"id":1381,"depth":404,"text":1382},{"id":1399,"depth":404,"text":1400},{"id":1505,"depth":404,"text":1506},{"id":1530,"depth":404,"text":1531},{"id":1567,"depth":404,"text":1568,"children":1820},[1821,1822],{"id":1635,"depth":401,"text":1636},{"id":1650,"depth":401,"text":1651},{"id":1664,"depth":404,"text":1665},{"id":1704,"depth":404,"text":1705},{"id":319,"depth":404,"text":320,"children":1826},[1827,1828,1829,1830],{"id":1769,"depth":401,"text":1770},{"id":1776,"depth":401,"text":1777},{"id":1783,"depth":401,"text":1784},{"id":1794,"depth":401,"text":1795},{"id":1801,"depth":404,"text":1802},"Asset allocation is how you split a portfolio across asset classes such as stocks, bonds, real estate and cash to match your goals and risk tolerance.",{},"/blog/asset-allocation","2023-09-29",{"title":1339,"description":1832},"blog/asset-allocation","qdlpMMRZK76hXLXx15GShkZoGW0xN6H6cMbvci_i4Po",{"id":1840,"title":1841,"body":1842,"description":2163,"extension":428,"meta":2164,"navigation":430,"path":2165,"publishedAt":2166,"seo":2167,"seo_description":434,"seo_title":434,"social_image":1855,"stem":2168,"updatedAt":436,"__hash__":2169},"blog/blog/dividend-aristocrats.md","Dividend Aristocrats - A Guide to Consistent Income",{"type":7,"value":1843,"toc":2146},[1844,1857,1860,1862,1879,1883,1886,1889,1892,1896,1899,1919,1922,1926,1929,1937,1940,1944,1947,1953,1968,1971,1979,1982,2008,2012,2015,2018,2026,2030,2033,2036,2039,2043,2046,2095,2098,2100,2104,2107,2111,2114,2118,2121,2125,2128,2132,2140],[10,1845,12,1846,12,1849,12,1852],{},[14,1847],{"srcSet":1848,"type":17},"/blog_images/dividend-aristocrats/dividend-aristocrats-cover.avif",[14,1850],{"srcSet":1851,"type":21},"/blog_images/dividend-aristocrats/dividend-aristocrats-cover.webp",[23,1853],{"alt":1854,"src":1855,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":1856},"Dividend Aristocrats","/blog_images/dividend-aristocrats/dividend-aristocrats-cover.png",[33],[35,1858,1859],{},"\"Dividend Aristocrat\" is not a compliment a company awards itself. It is a rules-based classification with a single demanding hurdle: raise the dividend every year for at least 25 consecutive years, without exception, through recessions and bad quarters alike. That requirement is what makes the group interesting to income investors, and what makes membership so easy to lose.",[39,1861,42],{"id":41},[44,1863,1864,1867,1870,1873,1876],{},[47,1865,1866],{},"Dividend Aristocrats are companies in the S&P 500 that have increased their dividend every year for at least 25 consecutive years.",[47,1868,1869],{},"To qualify as a Dividend Aristocrat a company must be an S&P 500 constituent, have a 25-year record of consecutive annual dividend increases, and meet the index's minimum size and liquidity requirements.",[47,1871,1872],{},"A company loses Dividend Aristocrat status if it cuts its dividend, merely holds it flat for a year, or drops out of the S&P 500.",[47,1874,1875],{},"The S&P 500 Dividend Aristocrats index is equally weighted rather than weighted by market capitalisation, so each member contributes roughly the same amount to its return.",[47,1877,1878],{},"Dividend Aristocrat status describes a company's dividend history, not its valuation or its future, so a long increase streak is a starting filter rather than a buy signal.",[39,1880,1882],{"id":1881},"what-are-dividend-aristocrats","What are Dividend Aristocrats?",[35,1884,1885],{},"Dividend Aristocrats are companies in the S&P 500 that have raised their dividend every year for at least 25 consecutive years. The term refers to the constituents of the S&P 500 Dividend Aristocrats index, which applies that rule mechanically rather than by judgement.",[35,1887,1888],{},"The 25-year requirement is a stringent filter because it spans multiple recessions. A company that has raised its dividend through every one of them has demonstrated durable earnings, conservative payout policy and a management culture that treats the dividend as a commitment rather than a discretionary payment.",[35,1890,1891],{},"Dividend Aristocrats tend to cluster in mature, cash-generative sectors: consumer staples, industrials, healthcare and utilities. Businesses in fast-changing industries rarely accumulate a 25-year streak, because their earnings are less predictable and their capital is usually better spent on growth.",[39,1893,1895],{"id":1894},"what-are-the-criteria-to-be-a-dividend-aristocrat","What are the criteria to be a Dividend Aristocrat?",[35,1897,1898],{},"A company must meet three requirements to be a Dividend Aristocrat: membership of the S&P 500, at least 25 consecutive years of annual dividend increases, and the index's minimum size and liquidity thresholds.",[178,1900,1901,1907,1913],{},[47,1902,1903,1906],{},[287,1904,1905],{},"S&P 500 membership."," The company must be a constituent of the S&P 500. A company with a 40-year dividend growth record that is not in the S&P 500 is not a Dividend Aristocrat, however impressive its history.",[47,1908,1909,1912],{},[287,1910,1911],{},"25 consecutive years of dividend increases."," The dividend per share must have increased in each of the last 25 years. Maintaining the dividend unchanged for a single year breaks the streak just as decisively as cutting it.",[47,1914,1915,1918],{},[287,1916,1917],{},"Size and liquidity."," The company must meet the index's minimum float-adjusted market capitalisation and average daily trading value requirements, which exist to keep the index investable.",[35,1920,1921],{},"The index has additional construction rules, including a minimum number of constituents and limits on how concentrated it can become in any one sector. Membership is reviewed annually, with the index rebalanced during the year, so the list changes as companies qualify and fall out.",[39,1923,1925],{"id":1924},"how-does-a-company-lose-dividend-aristocrat-status","How does a company lose Dividend Aristocrat status?",[35,1927,1928],{},"A company loses Dividend Aristocrat status the moment it fails to increase its dividend for a year, cuts its dividend, or ceases to be an S&P 500 constituent. There is no probation period and no partial credit.",[35,1930,1931,1932,1936],{},"The strictness cuts both ways. It is what gives the label meaning, and it is also why a company under pressure may keep raising its dividend by a token amount rather than accept removal, which is not necessarily in shareholders' interests. A dividend raised by a cent to protect a streak while earnings fall is a signal to check the ",[219,1933,1935],{"href":1934},"/blog/dividend-payout-ratio/","dividend payout ratio",", the share of earnings the dividend consumes.",[35,1938,1939],{},"Once lost, status can only be regained by starting a fresh 25-year streak. In practice, removal from the index is permanent for a generation.",[39,1941,1943],{"id":1942},"are-dividend-aristocrats-a-good-investment","Are Dividend Aristocrats a good investment?",[35,1945,1946],{},"Dividend Aristocrats have historically delivered index-like returns with somewhat lower volatility, which suits investors who value income stability more than maximum growth. The trade-off is real but modest, and the label alone says nothing about whether a given company is attractively priced today.",[35,1948,1949,1950,1952],{},"The case in favour is that a 25-year dividend growth record is a durable quality screen. Companies that clear it have proven earnings resilience across cycles, and their rising dividends mean a long-term holder's ",[219,1951,222],{"href":221},", the income measured against what they originally paid, climbs year after year.",[10,1954,12,1955,12,1958,12,1961],{},[14,1956],{"srcSet":1957,"type":17},"/blog_images/dividend-aristocrats/dividend-aristocrats-return.avif",[14,1959],{"srcSet":1960,"type":21},"/blog_images/dividend-aristocrats/dividend-aristocrats-return.webp",[23,1962],{"alt":1963,"src":1964,"style":1354,"width":1965,"height":1966,"decoding":30,"fetchPriority":31,"className":1967},"Dividend Aristocrats Performance","/blog_images/dividend-aristocrats/dividend-aristocrats-return.png",736,651,[33],[35,1969,1970],{},"Source: Data from Yahoo Finance",[35,1972,1973,1974,1978],{},"Over the period covered by the chart above, the annual return of the Dividend Aristocrats index since inception was 9.8%, compared with 9.65% for the S&P 500, with lower volatility of 14.58% against the S&P 500's 15.19%. That combination gives the Dividend Aristocrats index a marginally higher ",[219,1975,1977],{"href":1976},"/blog/what-is-sharpe-ratio/","Sharpe Ratio",", which measures return per unit of volatility, though the difference is not large enough to be decisive. These figures cover the period shown in the chart and will shift as further years are added.",[35,1980,1981],{},"The case against is worth stating plainly:",[44,1983,1984,1990,1996,2002],{},[47,1985,1986,1989],{},[287,1987,1988],{},"The screen is backward-looking."," A 25-year streak describes the past. It does not guarantee a 26th increase.",[47,1991,1992,1995],{},[287,1993,1994],{},"Sector concentration."," Because few technology companies qualify, a Dividend Aristocrats portfolio is structurally underexposed to the sector that has driven much of the market's recent growth.",[47,1997,1998,2001],{},[287,1999,2000],{},"Valuation is ignored."," The index selects on dividend history alone, so a member can be expensive and still be included.",[47,2003,2004,2007],{},[287,2005,2006],{},"Streak protection."," Membership creates an incentive to keep raising the dividend, even when retaining the cash would serve the business better.",[39,2009,2011],{"id":2010},"how-can-i-invest-in-dividend-aristocrats","How can I invest in Dividend Aristocrats?",[35,2013,2014],{},"Investors access Dividend Aristocrats either through an exchange-traded fund that tracks the index or by buying individual constituent companies directly. Both routes hold the same underlying businesses; they differ in cost, diversification and effort.",[35,2016,2017],{},"The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is designed to track the performance of S&P 500 companies with a history of consistently increasing dividends. A single purchase gives exposure to the whole equally weighted group, which removes the risk that any one company cuts its dividend and damages your income. The cost is an expense ratio and no control over which members you own.",[35,2019,2020,2021,2025],{},"Buying individual Dividend Aristocrats gives control over sector mix, valuation and position sizing, at the cost of research and monitoring. If you take that route, assess each company on its own financial health, industry position and growth prospects rather than on the label, and check the ",[219,2022,2024],{"href":2023},"/blog/dividend-yield/","dividend yield"," you are actually buying, since index membership says nothing about price.",[39,2027,2029],{"id":2028},"which-stocks-were-added-to-the-dividend-aristocrats-in-2023","Which stocks were added to the Dividend Aristocrats in 2023?",[35,2031,2032],{},"The list of Dividend Aristocrats is revised regularly, with both additions and removals. In the February 2023 adjustments, Nordson Corp. (NDSN), CH Robinson Worldwide Inc. (CHRW) and JM Smucker Co. (SJM) were added, and the list expanded further in August 2023 with the addition of Kenvue.",[35,2034,2035],{},"In the same year, VF Corp (VFC) and AT&T (T) were removed. Both companies reduced their dividends, which ends a Dividend Aristocrat streak immediately and triggers exclusion from the index.",[35,2037,2038],{},"The changes above describe 2023 only. Because membership is reviewed each year, the current constituent list will differ, and the index provider's published methodology and fact sheet are the authoritative source for who is in it today.",[39,2040,2042],{"id":2041},"dividend-aristocrats-vs-dividend-kings-vs-dividend-achievers","Dividend Aristocrats vs Dividend Kings vs Dividend Achievers",[35,2044,2045],{},"Dividend Aristocrats, Dividend Kings and Dividend Achievers are three dividend-growth classifications that differ in the length of the streak required and in which companies are eligible.",[80,2047,2048,2061],{},[83,2049,2050],{},[86,2051,2052,2055,2058],{},[89,2053,2054],{},"Classification",[89,2056,2057],{},"Streak required",[89,2059,2060],{},"Eligible universe",[96,2062,2063,2074,2084],{},[86,2064,2065,2068,2071],{},[101,2066,2067],{},"Dividend Achievers",[101,2069,2070],{},"10+ consecutive years of dividend increases",[101,2072,2073],{},"Broad US listed companies",[86,2075,2076,2078,2081],{},[101,2077,1854],{},[101,2079,2080],{},"25+ consecutive years of dividend increases",[101,2082,2083],{},"S&P 500 constituents only",[86,2085,2086,2089,2092],{},[101,2087,2088],{},"Dividend Kings",[101,2090,2091],{},"50+ consecutive years of dividend increases",[101,2093,2094],{},"US listed companies, S&P 500 membership not required",[35,2096,2097],{},"Dividend Kings clear the longest streak but are not restricted to the S&P 500, so the two groups overlap without either containing the other. Dividend Achievers is the widest of the three and includes younger dividend growers that have not yet built a 25-year record. Related indices apply similar rules to mid-cap and small-cap universes with shorter streak requirements.",[39,2099,320],{"id":319},[140,2101,2103],{"id":2102},"do-dividend-aristocrats-have-high-dividend-yields","Do Dividend Aristocrats have high dividend yields?",[35,2105,2106],{},"Not necessarily. Dividend Aristocrat status is awarded for consecutive years of dividend increases, not for the size of the dividend, and many members yield around or below the market average. A company that has raised its dividend for 25 years has usually also seen its share price rise, which keeps the dividend yield modest even as the payment grows.",[140,2108,2110],{"id":2109},"can-a-company-be-a-dividend-aristocrat-if-it-kept-its-dividend-flat-for-one-year","Can a company be a Dividend Aristocrat if it kept its dividend flat for one year?",[35,2112,2113],{},"No. The requirement is an increase in every one of the past 25 years, so a single year at an unchanged dividend ends the streak and removes the company from the index. This is stricter than the common assumption that only a dividend cut disqualifies a company. Rebuilding eligibility means starting a new 25-year record from scratch.",[140,2115,2117],{"id":2116},"are-there-dividend-aristocrats-outside-the-united-states","Are there Dividend Aristocrats outside the United States?",[35,2119,2120],{},"Yes. Index providers publish regional equivalents, including European, Canadian and pan-Asian dividend aristocrat indices. Their rules differ from the US version and typically require shorter streaks, often 7 to 10 years of maintained or increased dividends, because fewer non-US companies have 25-year records of annual increases.",[140,2122,2124],{"id":2123},"should-i-buy-the-dividend-aristocrats-etf-or-the-individual-stocks","Should I buy the Dividend Aristocrats ETF or the individual stocks?",[35,2126,2127],{},"An ETF tracking the index suits investors who want the whole group without per-company research, accepting an expense ratio and no control over holdings. Buying individual members suits investors willing to research each business and who want to select on valuation or sector. The underlying companies are the same in both cases.",[39,2129,2131],{"id":2130},"how-to-track-a-dividend-growth-portfolio-in-portseido","How to track a dividend growth portfolio in Portseido",[35,2133,2134,2135,2139],{},"A dividend growth strategy is only worth running if you can see whether the income is actually growing, and that is difficult to judge from brokerage statements alone. Portseido keeps a dividend income history for every holding, so you can see received income year by year, and reports yield on cost next to current dividend yield, which is where a long dividend growth record shows up as a number. It consolidates positions across multiple brokers and currencies, and can ",[219,2136,2138],{"href":2137},"/blog/how-to-benchmark-portfolio/","benchmark the portfolio against an index or ETF"," if you want to test a dividend growth portfolio against the broad market.",[35,2141,2142,2143],{},"Portseido tracks and reports on your portfolio; it does not screen for Dividend Aristocrats and does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,2144,363],{"href":361,"rel":2145},[240],{"title":400,"searchDepth":401,"depth":401,"links":2147},[2148,2149,2150,2151,2152,2153,2154,2155,2156,2162],{"id":41,"depth":404,"text":42},{"id":1881,"depth":404,"text":1882},{"id":1894,"depth":404,"text":1895},{"id":1924,"depth":404,"text":1925},{"id":1942,"depth":404,"text":1943},{"id":2010,"depth":404,"text":2011},{"id":2028,"depth":404,"text":2029},{"id":2041,"depth":404,"text":2042},{"id":319,"depth":404,"text":320,"children":2157},[2158,2159,2160,2161],{"id":2102,"depth":401,"text":2103},{"id":2109,"depth":401,"text":2110},{"id":2116,"depth":401,"text":2117},{"id":2123,"depth":401,"text":2124},{"id":2130,"depth":404,"text":2131},"Dividend Aristocrats are S&P 500 companies that have raised their dividend every year for at least 25 consecutive years.",{},"/blog/dividend-aristocrats","2024-01-04",{"title":1841,"description":2163},"blog/dividend-aristocrats","tjOlErCe7bPDV9hB1y215bOsaTMCUDK8ieCCMo7X10c",{"id":2171,"title":2172,"body":2173,"description":2543,"extension":428,"meta":2544,"navigation":430,"path":2545,"publishedAt":2546,"seo":2547,"seo_description":434,"seo_title":434,"social_image":2186,"stem":2548,"updatedAt":436,"__hash__":2549},"blog/blog/dividend-payout-ratio.md","What is Dividend Payout Ratio?",{"type":7,"value":2174,"toc":2527},[2175,2188,2191,2193,2210,2214,2217,2220,2223,2227,2230,2245,2261,2264,2273,2276,2279,2293,2297,2300,2354,2360,2364,2367,2370,2384,2390,2394,2397,2400,2408,2412,2415,2474,2480,2482,2486,2489,2493,2496,2500,2503,2507,2510,2514,2517,2523],[10,2176,12,2177,12,2180,12,2183],{},[14,2178],{"srcSet":2179,"type":17},"/blog_images/dividend-payout-ratio/dividend-payout-ratio-cover.avif",[14,2181],{"srcSet":2182,"type":21},"/blog_images/dividend-payout-ratio/dividend-payout-ratio-cover.webp",[23,2184],{"alt":2185,"src":2186,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":2187},"Dividend Payout Ratio","/blog_images/dividend-payout-ratio/dividend-payout-ratio-cover.png",[33],[35,2189,2190],{},"The dividend payout ratio is the sustainability check that dividend investors run before trusting a dividend. It answers a question that dividend yield cannot: out of everything the company earned, how much did it hand to shareholders, and how much did it keep? A dividend consuming a modest slice of profit has room to survive a bad year. One consuming all of it does not.",[39,2192,42],{"id":41},[44,2194,2195,2198,2201,2204,2207],{},[47,2196,2197],{},"The dividend payout ratio is the proportion of a company's earnings paid out as dividends, calculated as total dividends divided by net income, or dividends per share divided by earnings per share.",[47,2199,2200],{},"A company with a 60% dividend payout ratio pays 60% of its net profit to shareholders and retains the other 40% for reinvestment.",[47,2202,2203],{},"A dividend payout ratio between roughly 30% and 50% is commonly considered a healthy balance between paying shareholders and funding growth.",[47,2205,2206],{},"A dividend payout ratio above 100% means the company is paying out more than it earns, which cannot be sustained indefinitely and often precedes a dividend cut.",[47,2208,2209],{},"The dividend payout ratio measures the dividend against company earnings, while dividend yield measures the same dividend against the share price, so the two answer different questions.",[39,2211,2213],{"id":2212},"what-is-a-dividend-payout-ratio","What is a dividend payout ratio?",[35,2215,2216],{},"The dividend payout ratio is the proportion of a company's earnings that it distributes to shareholders as dividends, expressed as a percentage. It reveals a company's capital allocation policy in a single number: how much profit goes out of the door and how much stays in the business.",[35,2218,2219],{},"For example, a company with a 60% dividend payout ratio pays 60% of every dollar of net profit to shareholders and retains the remaining 40% to reinvest. That retained 40% is called the retention ratio, and the two always sum to 100%.",[35,2221,2222],{},"A low dividend payout ratio means the company is holding on to most of its earnings, usually to fund growth, pay down debt or buy back shares. A high dividend payout ratio means it is returning most of its earnings to shareholders instead, which is typical of mature businesses with fewer places to deploy capital profitably.",[39,2224,2226],{"id":2225},"how-is-the-dividend-payout-ratio-calculated","How is the dividend payout ratio calculated?",[35,2228,2229],{},"The dividend payout ratio is calculated by dividing total dividends paid by net income over the same period, then multiplying by 100 to express it as a percentage.",[10,2231,12,2232,12,2235,12,2238],{},[14,2233],{"srcSet":2234,"type":17},"/blog_images/dividend-payout-ratio/dividend-payout-ratio-formula.avif",[14,2236],{"srcSet":2237,"type":21},"/blog_images/dividend-payout-ratio/dividend-payout-ratio-formula.webp",[23,2239],{"alt":2240,"src":2241,"style":2242,"width":2243,"height":2244,"loading":670,"decoding":30},"Dividend Payout Ratio Formula","/blog_images/dividend-payout-ratio/dividend-payout-ratio-formula.png","max-width:100%; width:960px; height:auto;aspect-ratio:'attr(width) / attr(height)'",960,119,[2246,2247,2251],"pre",{"className":2248,"code":2249,"language":2250,"meta":400,"style":400},"language-sh shiki shiki-themes github-light","Dividend Payout Ratio = (Total Dividends Paid / Net Income) x 100\n","sh",[2252,2253,2254],"code",{"__ignoreMap":400},[2255,2256,2259],"span",{"class":2257,"line":2258},"line",1,[2255,2260,2249],{},[35,2262,2263],{},"The same ratio can be calculated on a per-share basis, which is often easier because both figures are published:",[2246,2265,2267],{"className":2248,"code":2266,"language":2250,"meta":400,"style":400},"Dividend Payout Ratio = (Dividends Per Share / Earnings Per Share) x 100\n",[2252,2268,2269],{"__ignoreMap":400},[2255,2270,2271],{"class":2257,"line":2258},[2255,2272,2266],{},[35,2274,2275],{},"Both versions give the same answer. For example, a company earning $5.00 in earnings per share and paying $2.00 in dividends per share has a dividend payout ratio of $2.00 / $5.00 = 40%. It keeps $3.00 per share to reinvest.",[35,2277,2278],{},"Two practical cautions when calculating the dividend payout ratio:",[178,2280,2281,2287],{},[47,2282,2283,2286],{},[287,2284,2285],{},"Match the periods."," Use dividends and earnings from the same fiscal year. Pairing this year's declared dividend with last year's earnings produces a ratio that means nothing.",[47,2288,2289,2292],{},[287,2290,2291],{},"Watch for one-off earnings."," A single large write-down or asset sale distorts net income, and therefore the ratio, for that year alone. Averaging the payout ratio over three to five years gives a truer picture of policy.",[39,2294,2296],{"id":2295},"what-is-a-good-dividend-payout-ratio","What is a good dividend payout ratio?",[35,2298,2299],{},"A dividend payout ratio between 30% and 50% is generally considered healthy for an established dividend payer, because it funds a meaningful dividend while leaving most of the earnings available to sustain the business. The bands below are conventions, not rules, and they shift with the industry and the company's stage of life.",[80,2301,2302,2312],{},[83,2303,2304],{},[86,2305,2306,2309],{},[89,2307,2308],{},"Dividend payout ratio",[89,2310,2311],{},"Common interpretation",[96,2313,2314,2322,2330,2338,2346],{},[86,2315,2316,2319],{},[101,2317,2318],{},"0% to 30%",[101,2320,2321],{},"Low. Typical of growth companies reinvesting earnings; leaves plenty of room for future dividend increases",[86,2323,2324,2327],{},[101,2325,2326],{},"30% to 50%",[101,2328,2329],{},"Healthy balance between paying shareholders and funding competitiveness",[86,2331,2332,2335],{},[101,2333,2334],{},"50% to 75%",[101,2336,2337],{},"Elevated. Sustainable for stable, cash-generative businesses, but leaves less cushion",[86,2339,2340,2343],{},[101,2341,2342],{},"75% to 100%",[101,2344,2345],{},"High. Most earnings are committed to the dividend, so a bad year forces a choice",[86,2347,2348,2351],{},[101,2349,2350],{},"Above 100%",[101,2352,2353],{},"Unsustainable. The company is paying more than it earns and will eventually have to cut",[35,2355,2356,2357,2359],{},"A low dividend payout ratio is not a failure. Many well-known investors argue against paying a dividend at all when the money can be reinvested at a high ",[219,2358,858],{"href":857},", because a dollar compounding inside the business is worth more than a dollar paid out. The question to ask of a low payout ratio is what the retained earnings are actually doing.",[39,2361,2363],{"id":2362},"is-a-higher-dividend-payout-ratio-better","Is a higher dividend payout ratio better?",[35,2365,2366],{},"No. A higher dividend payout ratio is not better, because it means less of the company's profit is available to defend and grow the business that funds the dividend in the first place.",[35,2368,2369],{},"The trade-off runs in both directions:",[44,2371,2372,2378],{},[47,2373,2374,2377],{},[287,2375,2376],{},"A payout ratio that is too high"," leaves no buffer. When earnings dip, the company must either borrow to maintain the dividend, cut it, or underinvest in the business.",[47,2379,2380,2383],{},[287,2381,2382],{},"A payout ratio that is too low"," may signal that management cannot find profitable uses for the cash and is simply hoarding it.",[35,2385,2386,2387,2389],{},"A ratio above 100% is the clearest warning. It means the dividend is being funded from cash reserves, asset sales or debt rather than from profit, and that arrangement has a time limit. This is one of the main reasons an unusually high ",[219,2388,2024],{"href":2023}," can be a trap rather than a bargain: the market has often already priced in the cut that the payout ratio implies.",[39,2391,2393],{"id":2392},"which-industries-normally-have-high-dividend-payout-ratios","Which industries normally have high dividend payout ratios?",[35,2395,2396],{},"Utilities, telecoms, consumer staples and real estate investment trusts normally run higher dividend payout ratios than the market average, because their earnings are relatively predictable and their reinvestment needs are limited.",[35,2398,2399],{},"Real estate investment trusts are a special case. A REIT must distribute the large majority of its taxable income to shareholders to keep its tax status, so a payout ratio that would look alarming for an industrial company is structurally normal for a REIT. REITs are also usually assessed on funds from operations rather than net income, because heavy depreciation charges understate the cash they actually generate.",[35,2401,2402,2403,2407],{},"Technology and biotechnology companies sit at the other end. Many pay no dividend at all, giving a payout ratio of 0%, and some only begin paying once growth matures, which is what happened when ",[219,2404,2406],{"href":2405},"/blog/when-growth-stocks-pay-dividend/","several large technology companies started paying dividends",". Compare a payout ratio with sector peers, never across sectors.",[39,2409,2411],{"id":2410},"what-is-the-difference-between-dividend-yield-and-dividend-payout-ratio","What is the difference between dividend yield and dividend payout ratio?",[35,2413,2414],{},"Dividend yield measures the dividend against the share price, while the dividend payout ratio measures the same dividend against the company's earnings. They share a numerator and nothing else.",[80,2416,2417,2428],{},[83,2418,2419],{},[86,2420,2421,2423,2426],{},[89,2422],{},[89,2424,2425],{},"Dividend yield",[89,2427,2308],{},[96,2429,2430,2441,2452,2463],{},[86,2431,2432,2435,2438],{},[101,2433,2434],{},"Formula",[101,2436,2437],{},"Annual dividend per share / share price",[101,2439,2440],{},"Dividends per share / earnings per share",[86,2442,2443,2446,2449],{},[101,2444,2445],{},"Denominator set by",[101,2447,2448],{},"The market",[101,2450,2451],{},"The company's profits",[86,2453,2454,2457,2460],{},[101,2455,2456],{},"Question answered",[101,2458,2459],{},"What income rate do I get for the price I pay?",[101,2461,2462],{},"Can the company afford this dividend?",[86,2464,2465,2468,2471],{},[101,2466,2467],{},"Changes when",[101,2469,2470],{},"The share price moves",[101,2472,2473],{},"Earnings or the dividend change",[35,2475,2476,2477,2479],{},"Read together, the two ratios sort income opportunities from income traps. A 6% dividend yield with a 40% payout ratio describes a well-covered dividend on a cheaply priced stock. A 6% dividend yield with a 110% payout ratio describes a dividend the company cannot currently afford. A third metric, ",[219,2478,222],{"href":221},", measures the dividend against what you originally paid and is used to track income growth on a position you already own.",[39,2481,320],{"id":319},[140,2483,2485],{"id":2484},"what-is-the-dividend-payout-ratio-if-a-company-has-negative-earnings","What is the dividend payout ratio if a company has negative earnings?",[35,2487,2488],{},"The dividend payout ratio is not meaningful when net income is negative, because dividing a positive dividend by a negative figure produces a negative percentage that cannot be interpreted on the normal scale. Analysts usually mark the ratio as not applicable and switch to a cash-flow-based measure, dividing dividends by free cash flow, to test whether the dividend is covered.",[140,2490,2492],{"id":2491},"what-is-dividend-coverage-ratio-and-how-does-it-relate","What is dividend coverage ratio and how does it relate?",[35,2494,2495],{},"The dividend coverage ratio is the inverse of the dividend payout ratio: earnings per share divided by dividends per share. A company with a 50% payout ratio has a dividend coverage ratio of 2, meaning earnings cover the dividend twice over. Coverage below 1 is the same warning as a payout ratio above 100%, expressed the other way round.",[140,2497,2499],{"id":2498},"should-share-buybacks-be-included-in-the-payout-ratio","Should share buybacks be included in the payout ratio?",[35,2501,2502],{},"The standard dividend payout ratio counts dividends only. Adding buybacks gives the total shareholder yield or total payout ratio, which is a fuller picture of cash returned to shareholders. Companies that favour buybacks over dividends can look stingy on the dividend payout ratio alone while returning just as much capital.",[140,2504,2506],{"id":2505},"where-do-i-find-the-numbers-to-calculate-the-dividend-payout-ratio","Where do I find the numbers to calculate the dividend payout ratio?",[35,2508,2509],{},"Both inputs come from a company's annual report or quarterly filing. Net income sits on the income statement, and dividends paid appear on the cash flow statement under financing activities. Earnings per share and dividends per share are usually stated directly in the earnings release, which makes the per-share version of the formula the quicker route.",[39,2511,2513],{"id":2512},"how-to-track-dividend-income-in-portseido","How to track dividend income in Portseido",[35,2515,2516],{},"Portseido does not calculate company fundamentals such as the dividend payout ratio, which come from a company's own financial statements. What it does track is the other half of the picture: the dividends actually landing in your accounts. It records every dividend payment across brokers and currencies, builds a dividend income history you can look back over, and reports dividend yield and yield on cost per holding alongside cost basis and total return.",[35,2518,2519,2520],{},"That history is what makes a payout ratio warning visible in your own portfolio, because a cut shows up as a fall in received income. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,2521,363],{"href":361,"rel":2522},[240],[2524,2525,2526],"style",{},"html .default .shiki span {color: var(--shiki-default);background: var(--shiki-default-bg);font-style: var(--shiki-default-font-style);font-weight: var(--shiki-default-font-weight);text-decoration: var(--shiki-default-text-decoration);}html .shiki span {color: var(--shiki-default);background: var(--shiki-default-bg);font-style: var(--shiki-default-font-style);font-weight: var(--shiki-default-font-weight);text-decoration: var(--shiki-default-text-decoration);}",{"title":400,"searchDepth":401,"depth":401,"links":2528},[2529,2530,2531,2532,2533,2534,2535,2536,2542],{"id":41,"depth":404,"text":42},{"id":2212,"depth":404,"text":2213},{"id":2225,"depth":404,"text":2226},{"id":2295,"depth":404,"text":2296},{"id":2362,"depth":404,"text":2363},{"id":2392,"depth":404,"text":2393},{"id":2410,"depth":404,"text":2411},{"id":319,"depth":404,"text":320,"children":2537},[2538,2539,2540,2541],{"id":2484,"depth":401,"text":2485},{"id":2491,"depth":401,"text":2492},{"id":2498,"depth":401,"text":2499},{"id":2505,"depth":401,"text":2506},{"id":2512,"depth":404,"text":2513},"The dividend payout ratio is the share of a company's earnings paid out as dividends, calculated as dividends divided by net income.",{},"/blog/dividend-payout-ratio","2023-11-06",{"title":2172,"description":2543},"blog/dividend-payout-ratio","zRPbr2C6GG4M0quUTrM8WkaKElL6r8NWt-rRVCYtn1w",{"id":2551,"title":2552,"body":2553,"description":2577,"extension":428,"meta":2926,"navigation":430,"path":2927,"publishedAt":2928,"seo":2929,"seo_description":434,"seo_title":434,"social_image":2566,"stem":2930,"updatedAt":436,"__hash__":2931},"blog/blog/dividend-yield.md","Dividend Yield - What is it? How to calculate?",{"type":7,"value":2554,"toc":2909},[2555,2568,2571,2573,2590,2594,2597,2600,2603,2607,2610,2622,2631,2634,2648,2651,2654,2658,2661,2714,2717,2721,2724,2727,2744,2747,2751,2754,2757,2771,2774,2778,2781,2830,2833,2844,2847,2849,2853,2856,2860,2868,2872,2875,2879,2882,2886,2889,2893,2901,2907],[10,2556,12,2557,12,2560,12,2563],{},[14,2558],{"srcSet":2559,"type":17},"/blog_images/dividend-yield/dividend-yield-cover.avif",[14,2561],{"srcSet":2562,"type":21},"/blog_images/dividend-yield/dividend-yield-cover.webp",[23,2564],{"alt":2565,"src":2566,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":2567},"Dividend Yield","/blog_images/dividend-yield/dividend-yield-cover.png",[33],[35,2569,2570],{},"Dividend yield is the metric most dividend investors reach for first, because it converts a dividend payment into a percentage that can be compared across companies, across sectors and against a bond yield. It is also the metric most often misread, because a high yield can signal a generous company or a falling share price, and the number alone does not say which.",[39,2572,42],{"id":41},[44,2574,2575,2578,2581,2584,2587],{},[47,2576,2577],{},"Dividend yield is a stock's annual dividend per share divided by its current share price, expressed as a percentage.",[47,2579,2580],{},"Dividend yield is calculated as annual dividend per share divided by current share price, so a $2 annual dividend on a $40 stock is a 5% dividend yield.",[47,2582,2583],{},"Dividend yield moves inversely with share price: if the dividend is unchanged and the price falls, dividend yield rises, which is why an unusually high yield often reflects a falling price rather than a generous payout.",[47,2585,2586],{},"Trailing dividend yield uses the dividends actually paid over the past 12 months, so it is backward-looking and does not promise the same income next year.",[47,2588,2589],{},"Dividend yield measures income against today's market price, while yield on cost measures the same dividend against what you originally paid, and the payout ratio measures the dividend against company earnings.",[39,2591,2593],{"id":2592},"what-is-dividend-yield","What is dividend yield?",[35,2595,2596],{},"Dividend yield is a financial ratio that measures a company's annual dividend as a percentage of its current share price. It tells you what income rate you would earn on money invested at today's price, assuming the dividend stays the same.",[35,2598,2599],{},"Dividend yield is quoted as a percentage so that income can be compared across investments of very different share prices. A $500 stock paying $10 a year and a $50 stock paying $1 a year both yield 2%, so the dollar amount of the dividend on its own says nothing useful.",[35,2601,2602],{},"Dividend yield changes every time the share price moves, even when the company has not changed its dividend at all. That is the single most important property of the ratio: the dividend sets the numerator and the market sets the denominator.",[39,2604,2606],{"id":2605},"how-is-dividend-yield-calculated","How is dividend yield calculated?",[35,2608,2609],{},"Dividend yield is calculated by dividing the annual dividend per share by the current market price per share, then multiplying by 100 to express the result as a percentage.",[10,2611,12,2612,12,2615,12,2618],{},[14,2613],{"srcSet":2614,"type":17},"/blog_images/dividend-yield/dividend-yield-formula.avif",[14,2616],{"srcSet":2617,"type":21},"/blog_images/dividend-yield/dividend-yield-formula.webp",[23,2619],{"alt":2620,"src":2621,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31},"Dividend Yield Formula","/blog_images/dividend-yield/dividend-yield-formula.png",[2246,2623,2625],{"className":2248,"code":2624,"language":2250,"meta":400,"style":400},"Dividend Yield = (Annual Dividend Per Share / Current Share Price) x 100\n",[2252,2626,2627],{"__ignoreMap":400},[2255,2628,2629],{"class":2257,"line":2258},[2255,2630,2624],{},[35,2632,2633],{},"You need exactly two inputs:",[178,2635,2636,2642],{},[47,2637,2638,2641],{},[287,2639,2640],{},"Annual dividend per share."," The total dividend paid on one share over a year. For a company paying quarterly, add the four quarterly payments together; do not use a single quarter.",[47,2643,2644,2647],{},[287,2645,2646],{},"Current share price."," The market price of one share right now.",[35,2649,2650],{},"For example, a company that pays an annual dividend of $2 per share while its stock trades at $40 has a dividend yield of $2 / $40 = 5%. Buy at $40 and, if the dividend holds, each share returns $2 of income a year.",[35,2652,2653],{},"Now hold the dividend constant and let the price fall to $25. The dividend yield becomes $2 / $25 = 8%. Nothing improved about the business; the yield rose only because the denominator shrank. Doing this arithmetic across a whole portfolio, in several currencies and at more than one broker, is where it becomes tedious. Portseido tracks dividends for every holding and reports dividend yield and yield on cost automatically from your transaction history, so the figures stay current without a spreadsheet.",[39,2655,2657],{"id":2656},"what-is-a-good-dividend-yield","What is a good dividend yield?",[35,2659,2660],{},"A dividend yield between roughly 2% and 5% is the range most established dividend payers fall into, and it is generally treated as healthy. Anything much above that band deserves a look at why, and anything below it usually means the company is retaining earnings rather than distributing them.",[80,2662,2663,2672],{},[83,2664,2665],{},[86,2666,2667,2669],{},[89,2668,2425],{},[89,2670,2671],{},"What it usually indicates",[96,2673,2674,2682,2690,2698,2706],{},[86,2675,2676,2679],{},[101,2677,2678],{},"0%",[101,2680,2681],{},"The company pays no dividend and reinvests all earnings",[86,2683,2684,2687],{},[101,2685,2686],{},"Under 2%",[101,2688,2689],{},"A growth-oriented company, or a payer whose share price has risen sharply",[86,2691,2692,2695],{},[101,2693,2694],{},"2% to 5%",[101,2696,2697],{},"The typical band for established, dividend-paying companies",[86,2699,2700,2703],{},[101,2701,2702],{},"5% to 8%",[101,2704,2705],{},"Elevated: check the payout ratio and whether the share price has fallen",[86,2707,2708,2711],{},[101,2709,2710],{},"Above 8%",[101,2712,2713],{},"Often a warning sign that the market expects the dividend to be cut",[35,2715,2716],{},"There is no universal good number, because dividend yield varies systematically by sector and by interest rates. Utilities and consumer staples habitually yield more than software companies, and when government bond yields rise, investors demand higher dividend yields from stocks to compensate for the extra risk.",[39,2718,2720],{"id":2719},"is-a-high-dividend-yield-good","Is a high dividend yield good?",[35,2722,2723],{},"A high dividend yield is not automatically good, because dividend yield rises both when a company increases its dividend and when its share price falls. The second cause is far more common at the extreme end of the range.",[35,2725,2726],{},"Two things determine whether a high dividend yield is worth having:",[44,2728,2729,2738],{},[47,2730,2731,2734,2735,2737],{},[287,2732,2733],{},"Sustainability."," A dividend is only income if it keeps being paid. Check the company's profit margins, free cash flow and ",[219,2736,1935],{"href":1934},", which measures what share of earnings the dividend consumes. A payout ratio above 100% means the company is paying out more than it earns, which cannot continue indefinitely.",[47,2739,2740,2743],{},[287,2741,2742],{},"Reinvestment."," A company distributing most of its profit is not funding future growth with it. That can be perfectly rational for a mature business, but it caps how fast the dividend itself can grow.",[35,2745,2746],{},"The trap has a name: a yield trap is a stock whose dividend yield looks generous only because the market has already marked the price down in anticipation of a dividend cut. When the cut arrives, the investor is left with both a lower income and a capital loss.",[39,2748,2750],{"id":2749},"is-dividend-yield-backward-looking-or-forward-looking","Is dividend yield backward-looking or forward-looking?",[35,2752,2753],{},"Dividend yield as published by most financial websites and dividend trackers is backward-looking, because it uses the dividends actually paid over the previous 12 months. That figure describes what a holder received last year, not what a buyer will receive next year.",[35,2755,2756],{},"Two versions of the ratio are in common use:",[44,2758,2759,2765],{},[47,2760,2761,2764],{},[287,2762,2763],{},"Trailing dividend yield."," The sum of dividends paid over the past 12 months divided by the current share price. Factual, but stale if the company has just changed its dividend.",[47,2766,2767,2770],{},[287,2768,2769],{},"Forward dividend yield."," The expected dividend over the next 12 months, usually the most recent declared payment annualised, divided by the current share price. More relevant to a buyer, but it rests on an estimate.",[35,2772,2773],{},"Neither version is a promise. A company can cut, suspend or raise its dividend at any time, so treat dividend yield as a starting point for research rather than a rate of return you have been guaranteed.",[39,2775,2777],{"id":2776},"dividend-yield-vs-yield-on-cost-vs-payout-ratio","Dividend yield vs yield on cost vs payout ratio",[35,2779,2780],{},"Dividend yield, yield on cost and the dividend payout ratio all involve the same dividend, but each divides it by something different, so each answers a different question.",[80,2782,2783,2794],{},[83,2784,2785],{},[86,2786,2787,2790,2792],{},[89,2788,2789],{},"Metric",[89,2791,2434],{},[89,2793,510],{},[96,2795,2796,2806,2819],{},[86,2797,2798,2800,2803],{},[101,2799,2425],{},[101,2801,2802],{},"Annual dividend per share / current share price",[101,2804,2805],{},"The income rate on money invested at today's price",[86,2807,2808,2813,2816],{},[101,2809,2810],{},[219,2811,2812],{"href":221},"Yield on cost",[101,2814,2815],{},"Annual dividend per share / your average cost basis",[101,2817,2818],{},"The income rate on what you personally paid, years ago",[86,2820,2821,2825,2827],{},[101,2822,2823],{},[219,2824,2308],{"href":1934},[101,2826,2440],{},[101,2828,2829],{},"How much of the company's profit the dividend consumes",[35,2831,2832],{},"A worked comparison makes the difference concrete. Suppose you bought shares several years ago at $50, when the company paid $1.50 a share, a 3% dividend yield at the time. The company has since raised the dividend to $3.50 a share and the price has risen to $100.",[44,2834,2835,2838,2841],{},[47,2836,2837],{},"Dividend yield today is $3.50 / $100 = 3.5%. That is what a new buyer gets.",[47,2839,2840],{},"Your yield on cost is $3.50 / $50 = 7%. That is what your original $50 now earns.",[47,2842,2843],{},"If the company's earnings per share are $7, the payout ratio is $3.50 / $7 = 50%, telling you the dividend uses half of profits.",[35,2845,2846],{},"Dividend yield is the metric for deciding what to buy. Yield on cost is the metric for seeing how a long-held position's income has grown. The payout ratio is the metric for judging whether the dividend can survive.",[39,2848,320],{"id":319},[140,2850,2852],{"id":2851},"how-often-is-dividend-yield-updated","How often is dividend yield updated?",[35,2854,2855],{},"Dividend yield changes continuously during market hours, because the current share price in the denominator changes with every trade. The dividend in the numerator changes only when the company declares a different payment, typically once a quarter or once a year. A quoted dividend yield is therefore a snapshot tied to a specific share price.",[140,2857,2859],{"id":2858},"do-i-need-to-own-a-stock-on-a-particular-date-to-receive-the-dividend","Do I need to own a stock on a particular date to receive the dividend?",[35,2861,2862,2863,2867],{},"Yes. You must own the shares before the ",[219,2864,2866],{"href":2865},"/blog/ex-dividend-date/","ex-dividend date"," to receive the upcoming payment. Buying on or after the ex-dividend date means the dividend goes to the previous owner. Dividend yield says nothing about eligibility; it is only the ratio of annual dividend to price.",[140,2869,2871],{"id":2870},"can-dividend-yield-be-negative","Can dividend yield be negative?",[35,2873,2874],{},"No. Dividend yield cannot be negative, because neither a dividend payment nor a share price can be negative. The lowest possible dividend yield is 0%, which is what a company that pays no dividend has. Total return can be negative when the share price falls further than the dividend income received, but the yield ratio itself cannot.",[140,2876,2878],{"id":2877},"do-etfs-and-funds-have-a-dividend-yield","Do ETFs and funds have a dividend yield?",[35,2880,2881],{},"Yes. An ETF or mutual fund distributes the dividends it collects from its underlying holdings, and its dividend yield is those distributions over the past 12 months divided by the fund's current price. Fund yields are quoted net of the fund's expense ratio, so the yield you receive is slightly lower than the weighted average yield of the holdings.",[140,2883,2885],{"id":2884},"should-i-pick-stocks-by-dividend-yield-alone","Should I pick stocks by dividend yield alone?",[35,2887,2888],{},"No. Dividend yield ignores dividend growth, payout sustainability and total return. A 2% yield growing 10% a year overtakes a static 5% yield within roughly a decade, and a high yield frequently precedes a dividend cut. Read dividend yield alongside the payout ratio, the dividend growth record and the company's cash flow.",[39,2890,2892],{"id":2891},"how-to-track-dividend-yield-in-portseido","How to track dividend yield in Portseido",[35,2894,2895,2896,2900],{},"Portseido is a portfolio and dividend tracker that keeps a running record of every dividend you receive and reports it as both dividend yield and yield on cost per holding. Because it consolidates positions across multiple brokers and currencies, the income picture covers the whole portfolio rather than one account at a time, and the ",[219,2897,2899],{"href":2898},"/dividend-tracker/","dividend tracking features"," include a dividend calendar, projected income and dividend history alongside cost basis and total return.",[35,2902,2903,2904],{},"It suits long-term dividend investors who want to see how their income has grown rather than re-deriving yields by hand each quarter. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,2905,363],{"href":361,"rel":2906},[240],[2524,2908,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":2910},[2911,2912,2913,2914,2915,2916,2917,2918,2925],{"id":41,"depth":404,"text":42},{"id":2592,"depth":404,"text":2593},{"id":2605,"depth":404,"text":2606},{"id":2656,"depth":404,"text":2657},{"id":2719,"depth":404,"text":2720},{"id":2749,"depth":404,"text":2750},{"id":2776,"depth":404,"text":2777},{"id":319,"depth":404,"text":320,"children":2919},[2920,2921,2922,2923,2924],{"id":2851,"depth":401,"text":2852},{"id":2858,"depth":401,"text":2859},{"id":2870,"depth":401,"text":2871},{"id":2877,"depth":401,"text":2878},{"id":2884,"depth":401,"text":2885},{"id":2891,"depth":404,"text":2892},{},"/blog/dividend-yield","2023-10-16",{"title":2552,"description":2577},"blog/dividend-yield","Dtsdt1e9E_aVmDIRG4t3l4A0xl1ffZ8wXbmRTGgQcdQ",{"id":2933,"title":2934,"body":2935,"description":3353,"extension":428,"meta":3354,"navigation":430,"path":3355,"publishedAt":3356,"seo":3357,"seo_description":434,"seo_title":434,"social_image":3194,"stem":3358,"updatedAt":436,"__hash__":3359},"blog/blog/drawdown-why-investors-should-track-it.md","Drawdown definition and what it means to investors",{"type":7,"value":2936,"toc":3332},[2937,2940,2942,2959,2963,2966,2974,2977,2981,2984,2992,2995,2999,3002,3006,3021,3041,3044,3048,3063,3066,3075,3078,3082,3085,3100,3105,3114,3119,3128,3133,3140,3144,3147,3150,3173,3176,3180,3183,3198,3212,3225,3228,3241,3244,3247,3251,3254,3257,3263,3269,3277,3279,3283,3286,3290,3293,3297,3303,3307,3310,3314,3317,3321,3324,3330],[35,2938,2939],{},"Drawdown is one of the most useful metrics for measuring the risk in an investment strategy, because it records what an investor actually lived through rather than a statistical estimate of it. It is also the metric most likely to be misused: watching a drawdown in real time and reacting emotionally to it has ruined more portfolios than the drawdown itself.",[39,2941,42],{"id":41},[44,2943,2944,2947,2950,2953,2956],{},[47,2945,2946],{},"Drawdown is the decline in an investment's value from its previous peak, expressed as a percentage of that peak.",[47,2948,2949],{},"Maximum drawdown (MDD) is the largest peak-to-trough decline an investment suffered over a given period, representing the worst outcome for someone who bought at the top and sold at the bottom.",[47,2951,2952],{},"Drawdown is calculated as the current value minus the peak value, divided by the peak value, which produces a negative percentage.",[47,2954,2955],{},"Drawdown measures downside risk directly, which is closer to how most investors define risk — the permanent loss of capital — than volatility-based measures such as standard deviation or beta.",[47,2957,2958],{},"Drawdowns are unavoidable in equity investing, so the useful response is expectation setting rather than reaction.",[39,2960,2962],{"id":2961},"what-is-drawdown","What is drawdown?",[35,2964,2965],{},"Drawdown is the decline in the value of an investment from its previous peak, typically measured as a percentage. It is used to infer the downside risk of an investment or a strategy.",[35,2967,2968,2969,2973],{},"Many investors consider risk to be the permanent loss of capital, and drawdown is the metric closest to that definition. Where standard deviation and ",[219,2970,2972],{"href":2971},"/blog/what-is-beta/","beta describe how widely returns scatter",", drawdown describes how far the account actually fell and how long it stayed down.",[35,2975,2976],{},"Drawdown is always negative or zero. An investment sitting at a new all-time high has a drawdown of 0%; one that has fallen from $100,000 to $80,000 has a drawdown of -20%.",[39,2978,2980],{"id":2979},"what-is-maximum-drawdown","What is maximum drawdown?",[35,2982,2983],{},"Maximum drawdown (MDD) is the largest percentage decline in an investment's value from a peak to a subsequent trough over a specific time frame. It measures the single biggest drop the investment suffered during the period.",[35,2985,2986,2987,733],{},"Maximum drawdown matters because it describes the worst-case experience for an investor who bought at the highest point and sold at the lowest point. It answers a question no average return can: how bad did this get? The metric is particularly relevant during economic downturns, since significant drawdowns often coincide with ",[219,2988,2991],{"href":2989,"rel":2990},"https://lifemathmoney.com/recession/",[240],"recessions",[35,2993,2994],{},"Maximum drawdown is measured over a stated window, and the window changes the answer. A fund's maximum drawdown since inception and over the past three years are different numbers, so always quote the period alongside the figure.",[39,2996,2998],{"id":2997},"how-is-maximum-drawdown-calculated","How is maximum drawdown calculated?",[35,3000,3001],{},"Maximum drawdown is calculated by finding the drawdown at every point in the period — the current value minus the running peak value, divided by that peak value — and taking the largest decline among them.",[140,3003,3005],{"id":3004},"drawdown-formula","Drawdown formula",[10,3007,12,3008,12,3011,12,3014],{},[14,3009],{"srcSet":3010,"type":17},"/blog_images/drawdown-why-investors-should-track-it/drawdown-formula.avif",[14,3012],{"srcSet":3013,"type":21},"/blog_images/drawdown-why-investors-should-track-it/drawdown-formula.webp",[23,3015],{"alt":3016,"src":3017,"style":3018,"width":3019,"height":3020,"decoding":30,"fetchPriority":31},"Drawdown Formula","/blog_images/drawdown-why-investors-should-track-it/drawdown-formula.png","max-width:100%;width:699px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",699,76,[2246,3022,3024],{"className":2248,"code":3023,"language":2250,"meta":400,"style":400},"Drawdown (%) = (Current Value - Peak Value) / Peak Value\n\nMaximum Drawdown = the most negative Drawdown (%) over the period\n",[2252,3025,3026,3031,3036],{"__ignoreMap":400},[2255,3027,3028],{"class":2257,"line":2258},[2255,3029,3030],{},"Drawdown (%) = (Current Value - Peak Value) / Peak Value\n",[2255,3032,3033],{"class":2257,"line":404},[2255,3034,3035],{"emptyLinePlaceholder":430},"\n",[2255,3037,3038],{"class":2257,"line":401},[2255,3039,3040],{},"Maximum Drawdown = the most negative Drawdown (%) over the period\n",[35,3042,3043],{},"The peak value is the highest value the investment reached at any point up to and including the current date, not the highest it ever reached. The running peak only ever goes up, and it resets the reference point each time the investment makes a new high.",[140,3045,3047],{"id":3046},"max-drawdown-calculation-example","Max drawdown calculation example",[10,3049,12,3050,12,3053,12,3056],{},[14,3051],{"srcSet":3052,"type":17},"/blog_images/drawdown-why-investors-should-track-it/drawdown-calculation-example.avif",[14,3054],{"srcSet":3055,"type":21},"/blog_images/drawdown-why-investors-should-track-it/drawdown-calculation-example.webp",[23,3057],{"alt":3058,"src":3059,"style":3060,"width":3061,"height":3062,"decoding":30,"fetchPriority":31},"Drawdown Calculation Example","/blog_images/drawdown-why-investors-should-track-it/drawdown-calculation-example.png","max-width:100%;width:234px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto; margin-top: 20px;",234,237,[35,3064,3065],{},"To find the maximum drawdown from a series of portfolio values, identify each peak and the lowest value that followed it, calculate the drawdown for each of those pairs, then take the largest decline. In the series above, the deepest pair is a peak of 1,230 followed by a trough of 1,060:",[2246,3067,3069],{"className":2248,"code":3068,"language":2250,"meta":400,"style":400},"MaxDrawdown = (1060 - 1230) / 1230 = -13.82%\n",[2252,3070,3071],{"__ignoreMap":400},[2255,3072,3073],{"class":2257,"line":2258},[2255,3074,3068],{},[35,3076,3077],{},"A maximum drawdown of -13.82% means an investor who bought at the peak of 1,230 and sold at the trough of 1,060 lost 13.82% of the amount invested. It also sets a recovery target: the portfolio needs to gain 16.04% to return to its old peak, because that gain is calculated on the smaller remaining balance.",[39,3079,3081],{"id":3080},"how-do-you-calculate-maximum-drawdown-in-a-spreadsheet","How do you calculate maximum drawdown in a spreadsheet?",[35,3083,3084],{},"Maximum drawdown is calculated in a spreadsheet in three steps: build a running peak column, calculate the drawdown at each period against that peak, then take the minimum of the drawdown column. Starting from a column of historical portfolio values, one row per period:",[10,3086,12,3087,12,3090,12,3093],{},[14,3088],{"srcSet":3089,"type":17},"/blog_images/drawdown-why-investors-should-track-it/drawdown-calculation-spreadsheet.avif",[14,3091],{"srcSet":3092,"type":21},"/blog_images/drawdown-why-investors-should-track-it/drawdown-calculation-spreadsheet.webp",[23,3094],{"alt":3095,"src":3096,"style":3097,"width":3098,"height":3099,"decoding":30,"fetchPriority":31},"Drawdown Calculation in Spreadsheet","/blog_images/drawdown-why-investors-should-track-it/drawdown-calculation-spreadsheet.png","max-width:100%;width:895px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto; margin-top: 20px;",895,274,[178,3101,3102],{},[47,3103,3104],{},"Calculate the peak value of each period using the \"MAX\" function, which carries the running high forward:",[2246,3106,3108],{"className":2248,"code":3107,"language":2250,"meta":400,"style":400},"MAX(Current Value, Previous Peak Value)\n",[2252,3109,3110],{"__ignoreMap":400},[2255,3111,3112],{"class":2257,"line":2258},[2255,3113,3107],{},[178,3115,3116],{"start":404},[47,3117,3118],{},"Compute the drawdown (%) at each period against that running peak:",[2246,3120,3122],{"className":2248,"code":3121,"language":2250,"meta":400,"style":400},"(Current Value - Peak Value) / Peak Value\n",[2252,3123,3124],{"__ignoreMap":400},[2255,3125,3126],{"class":2257,"line":2258},[2255,3127,3121],{},[178,3129,3130],{"start":401},[47,3131,3132],{},"Get the maximum drawdown by applying the \"MIN\" function to the whole drawdown (%) column. MIN rather than MAX, because drawdowns are negative numbers and the largest decline is the most negative one.",[35,3134,3135,3136,3139],{},"The hard part is not the formula but the input column: building an accurate value history means valuing every holding at every date, across every broker and currency, including dividends and deposits. Portseido reports drawdown directly from your transaction history, alongside ",[219,3137,3138],{"href":1030},"time-weighted and money-weighted returns",", so the value series stays current without spreadsheet maintenance.",[39,3141,3143],{"id":3142},"why-should-investors-track-drawdown","Why should investors track drawdown?",[35,3145,3146],{},"Investors should track drawdown because it quantifies the downside their strategy actually produced, which is the risk figure that determines whether they can stick with it. A strategy an investor abandons at the bottom returns nothing, regardless of what its backtest showed.",[35,3148,3149],{},"Drawdown adds something that return figures and volatility measures do not:",[44,3151,3152,3158,3164],{},[47,3153,3154,3157],{},[287,3155,3156],{},"It is expressed in the terms people feel."," \"Down 42% from the peak\" lands differently from \"annualised volatility of 18%\", and it is the same information about the same risk.",[47,3159,3160,3163],{},[287,3161,3162],{},"It reveals strategy risk."," A portfolio with a much deeper maximum drawdown than its benchmark is taking more downside risk, whatever its headline return says.",[47,3165,3166,3169,3170,733],{},[287,3167,3168],{},"It is a personal calibration tool."," Comparing the drawdown you have tolerated in the past against the one your current allocation implies is a reality check on ",[219,3171,3172],{"href":247},"how your capital is split across asset classes",[35,3174,3175],{},"The risk is emotional attachment to the number. Watching an investment drop 50% from $100,000 to $50,000 is genuinely painful, and it is easy to guess what an emotional investor does next: panic selling. The most reliable defence is expectation management — knowing in advance what a normal downturn looks like, so the drawdown feels like a known cost rather than an emergency.",[39,3177,3179],{"id":3178},"what-drawdowns-should-investors-expect","What drawdowns should investors expect?",[35,3181,3182],{},"Investors should expect deep drawdowns as a normal feature of equity investing, not as an exception. Drawdowns cannot be avoided, so the only real question is how large a one a given strategy implies.",[10,3184,12,3185,12,3188,12,3191],{},[14,3186],{"srcSet":3187,"type":17},"/blog_images/drawdown-why-investors-should-track-it/portseido-portfolio-dashboard.avif",[14,3189],{"srcSet":3190,"type":21},"/blog_images/drawdown-why-investors-should-track-it/portseido-portfolio-dashboard.webp",[23,3192],{"alt":3193,"src":3194,"style":3195,"width":3196,"height":3197,"decoding":30},"Portseido Portfolio dashboard","/blog_images/drawdown-why-investors-should-track-it/portseido-portfolio-dashboard.png","max-width:100%; width:692px; height:auto;aspect-ratio:'attr(width) / attr(height)'",692,696,[35,3199,3200,3201,3204,3205,3208,3209,733],{},"Measured to 15 February 2022, ",[287,3202,3203],{},"SPY"," (SPDR S&P 500 ETF Trust) had produced an ",[287,3206,3207],{},"annualized return of 8.87%"," over the preceding 29 years. An investment of $10,000 in SPY over that period would have grown to $117,100, a ",[287,3210,3211],{},"1071% total return",[10,3213,12,3214,12,3217,12,3220],{},[14,3215],{"srcSet":3216,"type":17},"/blog_images/drawdown-why-investors-should-track-it/sp500-drawdown-chart.avif",[14,3218],{"srcSet":3219,"type":21},"/blog_images/drawdown-why-investors-should-track-it/sp500-drawdown-chart.webp",[23,3221],{"alt":3222,"src":3223,"style":624,"width":625,"height":3224,"loading":670,"decoding":30},"S&P500 drawdown chart","/blog_images/drawdown-why-investors-should-track-it/sp500-drawdown-chart.png",468,[35,3226,3227],{},"What that headline return does not tell you is what it took to collect. Over the same 29 years, an SPY investor saw the investment halved once, down more than 30% three times, and down more than 10% twelve times. Translated into expectations: an S&P 500 investor should anticipate being down more than 40% roughly once every 15 years, more than 30% about once a decade, and more than 10% about every 2.5 years — while still expecting something like an 8.87% annualized return over the long term.",[10,3229,12,3230,12,3233,12,3236],{},[14,3231],{"srcSet":3232,"type":17},"/blog_images/drawdown-why-investors-should-track-it/nasdaq-100-drawdown-chart.avif",[14,3234],{"srcSet":3235,"type":21},"/blog_images/drawdown-why-investors-should-track-it/nasdaq-100-drawdown-chart.webp",[23,3237],{"alt":3238,"src":3239,"style":624,"width":625,"height":3240,"loading":670,"decoding":30},"Nasdaq-100 (QQQ) drawdown chart","/blog_images/drawdown-why-investors-should-track-it/nasdaq-100-drawdown-chart.png",469,[35,3242,3243],{},"QQQ (Invesco QQQ Trust, which tracks the Nasdaq-100 Index) did considerably worse on drawdown over the same measurement window. Over the preceding 22 years it had returned 12.42% annualized, a total of 1356%, yet it dropped 82.96% in just 2.5 years and took almost 13 years to recover the value that had been wiped out. A higher long-run return came with a far deeper hole in the middle.",[35,3245,3246],{},"The future may not repeat the past, but this history is a reasonable proxy for setting downside expectations. Matching that expectation against your own risk appetite is how you choose a strategy you can hold: an aggressive approach such as growth investing implies both a higher expected return in a bull market and a deeper drawdown in a downturn, while a conservative approach such as value investing implies less of both.",[39,3248,3250],{"id":3249},"how-should-investors-respond-to-a-drawdown","How should investors respond to a drawdown?",[35,3252,3253],{},"Investors should respond to a drawdown by treating it as information rather than as an instruction to act. Drawdown is a proxy for how much risk a strategy carried; it is not a signal that the strategy has failed.",[35,3255,3256],{},"Two principles hold in a drawdown, and they hold in bull markets too.",[35,3258,3259,3262],{},[287,3260,3261],{},"Act deliberately, not reactively."," Every decision should be justified by reasoning about the underlying investments, not by the size of the number on the screen. If nothing about the businesses you own has changed, a falling price is a change in the market's opinion rather than in the facts.",[35,3264,3265,3268],{},[287,3266,3267],{},"Treat mistakes as material to learn from."," Every investor makes them: overleveraged businesses, low-moat companies with unsustainable growth, overly optimistic expectations during a bubble. What separates good investors from the rest is what they do with those mistakes afterwards. Improving a little at a time compounds much like interest does — imperceptible day to day, decisive over a decade.",[35,3270,3271,3272,3276],{},"Reviewing drawdown after the fact, alongside ",[219,3273,3275],{"href":3274},"/blog/portfolio-performance-evaluation/","the full set of portfolio performance measures",", is far more useful than watching it live.",[39,3278,320],{"id":319},[140,3280,3282],{"id":3281},"what-is-the-difference-between-drawdown-and-loss","What is the difference between drawdown and loss?",[35,3284,3285],{},"A loss is realised when an investment is sold below its cost, while drawdown is the decline from a previous peak whether or not anything has been sold. An investment bought at $50 that rose to $100 and fell back to $80 is showing a 20% drawdown and a 60% gain at the same time. Drawdown measures distance from the high, not from what you paid.",[140,3287,3289],{"id":3288},"how-much-does-an-investment-need-to-gain-to-recover-from-a-drawdown","How much does an investment need to gain to recover from a drawdown?",[35,3291,3292],{},"More than it lost, because the gain is calculated on the smaller remaining balance. Recovering from a 20% drawdown requires a 25% gain, from a 50% drawdown requires a 100% gain, and from an 80% drawdown requires a 400% gain. The formula is 1 / (1 + drawdown) - 1. This asymmetry is why deep drawdowns matter far more than shallow ones.",[140,3294,3296],{"id":3295},"is-maximum-drawdown-better-than-standard-deviation-as-a-risk-measure","Is maximum drawdown better than standard deviation as a risk measure?",[35,3298,3299,3300,733],{},"Maximum drawdown and standard deviation measure different things and are best read together. Standard deviation describes how widely returns scatter in both directions; maximum drawdown describes the single worst peak-to-trough decline. Drawdown is closer to how investors experience risk, but rests on one historical episode, so it is more sensitive to the period chosen than ",[219,3301,3302],{"href":1976},"risk measures such as the Sharpe Ratio",[140,3304,3306],{"id":3305},"what-is-drawdown-duration","What is drawdown duration?",[35,3308,3309],{},"Drawdown duration is the time between an investment's peak and the moment it recovers that peak, and it is often more punishing than the depth of the decline. A portfolio down 30% for six months and one down 30% for nine years produce the same maximum drawdown figure but completely different experiences. Quote depth and duration together wherever possible.",[140,3311,3313],{"id":3312},"should-i-sell-to-avoid-a-drawdown","Should I sell to avoid a drawdown?",[35,3315,3316],{},"Selling into a drawdown converts a paper decline into a realised loss, and recovering then requires a second correct decision about when to buy back. Historically, deep declines in broad equity indices have been followed by recoveries, though the wait has sometimes run past a decade. The decision should rest on whether your reasons for owning the investments still hold, not on the size of the decline.",[39,3318,3320],{"id":3319},"how-to-track-drawdown-in-portseido","How to track drawdown in Portseido",[35,3322,3323],{},"Portseido is a portfolio tracker that reports drawdown for your actual portfolio rather than for an index. It consolidates holdings across brokers and currencies, builds the portfolio value history that drawdown is calculated from, and shows drawdown alongside time-weighted and money-weighted returns, cost basis, dividends, yield on cost and asset allocation. You can also benchmark the portfolio against indices and ETFs to see whether your drawdown was deeper or shallower than the market's.",[35,3325,3326,3327],{},"It suits self-directed investors who want one consistent record of what their strategy actually put them through. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations, and it will not tell you when a drawdown is over. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,3328,363],{"href":361,"rel":3329},[240],[2524,3331,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":3333},[3334,3335,3336,3337,3341,3342,3343,3344,3345,3352],{"id":41,"depth":404,"text":42},{"id":2961,"depth":404,"text":2962},{"id":2979,"depth":404,"text":2980},{"id":2997,"depth":404,"text":2998,"children":3338},[3339,3340],{"id":3004,"depth":401,"text":3005},{"id":3046,"depth":401,"text":3047},{"id":3080,"depth":404,"text":3081},{"id":3142,"depth":404,"text":3143},{"id":3178,"depth":404,"text":3179},{"id":3249,"depth":404,"text":3250},{"id":319,"depth":404,"text":320,"children":3346},[3347,3348,3349,3350,3351],{"id":3281,"depth":401,"text":3282},{"id":3288,"depth":401,"text":3289},{"id":3295,"depth":401,"text":3296},{"id":3305,"depth":401,"text":3306},{"id":3312,"depth":401,"text":3313},{"id":3319,"depth":404,"text":3320},"Drawdown is the decline in an investment's value from its previous peak, measured as a percentage. It shows the downside risk an investor lived through.",{},"/blog/drawdown-why-investors-should-track-it","2022-07-06",{"title":2934,"description":3353},"blog/drawdown-why-investors-should-track-it","3HCOKULXuX5S8TlGnXsqaYgBsPPVTjFJiU42_hx5aEA",{"id":3361,"title":3362,"body":3363,"description":3828,"extension":428,"meta":3829,"navigation":430,"path":3831,"publishedAt":3832,"seo":3833,"seo_description":3834,"seo_title":3835,"social_image":3836,"stem":3837,"updatedAt":3832,"__hash__":3838},"blog/blog/ep1-warren-buffett-portfolio.md","Warren Buffett Portfolio Analysis 2025",{"type":7,"value":3364,"toc":3810},[3365,3374,3383,3395,3398,3400,3417,3421,3424,3436,3439,3451,3470,3474,3477,3489,3492,3554,3569,3576,3580,3583,3595,3598,3610,3617,3621,3624,3636,3646,3658,3661,3665,3668,3680,3683,3695,3702,3706,3709,3721,3733,3737,3740,3760,3762,3766,3769,3773,3776,3780,3783,3787,3790,3794,3797,3801,3804],[35,3366,3367,3368,3373],{},"Warren Buffett's Berkshire Hathaway equity portfolio is one of the few large portfolios the public can inspect in detail, because US institutional managers must disclose their US-listed stock positions every quarter on Form 13F. This analysis loads over a decade of ",[219,3369,3372],{"href":3370,"rel":3371},"https://www.sec.gov/edgar/browse/?CIK=0001067983",[240],"Berkshire Hathaway's publicly available 13F data"," into the Portseido portfolio tracker and reports what the filings through mid-2025 show about performance, concentration, dividends and trading activity.",[3375,3376,3377],"blockquote",{},[35,3378,3379,3382],{},[287,3380,3381],{},"Disclaimer:"," This analysis is based on publicly available 13F data from 2013-2025. Trade dates and prices are estimated at quarter-end. The analysis excludes Berkshire Hathaway's large cash holdings to focus specifically on the performance of its equity portfolio. TWR return calculation method is used in this analysis. Every figure below reflects that 2013-2025 dataset as of the August 2025 analysis and has not been recalculated since.",[3384,3385,3387,3388],"div",{"style":3386},"position:relative;padding-bottom:56.25%;height:0;overflow:hidden;max-width:100%;","\n  ",[3389,3390],"iframe",{"src":3391,"title":3392,"frameBorder":3393,"allowFullScreen":430,"style":3394},"https://www.youtube.com/embed/yZMbWhaL1Qc","Warren Buffett Portfolio Analysis","0","position:absolute;top:0;left:0;width:100%;height:100%;",[3396,3397],"br",{},[39,3399,42],{"id":41},[44,3401,3402,3405,3408,3411,3414],{},[47,3403,3404],{},"Warren Buffett's Berkshire Hathaway equity portfolio was valued at over $266 billion across 39 holdings in the 2013-2025 13F dataset analysed here as of August 2025.",[47,3406,3407],{},"Warren Buffett's equity portfolio returned an annualised 10.87% on a time-weighted basis from 2013 to 2025, slightly behind the S&P 500's 12.03% over the same window.",[47,3409,3410],{},"Warren Buffett's portfolio is highly concentrated: the top three positions were more than half of the equity portfolio and the top ten were 87.6% of it in the 2025 filing data.",[47,3412,3413],{},"Warren Buffett's portfolio held a yield on cost of 3.25% against a current dividend yield of 1.81% in the 2025 analysis, the arithmetic result of buying dividend payers years before.",[47,3415,3416],{},"Warren Buffett trades more than his \"buy and hold\" reputation suggests, with 101 trades in 2020 and $176 billion of stock sold in 2024, while portfolio turnover stayed near 14%.",[39,3418,3420],{"id":3419},"how-has-warren-buffetts-portfolio-performed","How has Warren Buffett's portfolio performed?",[35,3422,3423],{},"Warren Buffett's Berkshire Hathaway equity portfolio grew to over $266 billion in the 2013-2025 period covered by this analysis, with a beta of 1.01 and a maximum drawdown of -39.14% that took 451 days to recover.",[10,3425,12,3426,12,3429,12,3432],{},[14,3427],{"srcSet":3428,"type":17},"/blog_images/ep1-warren-buffett/2.avif",[14,3430],{"srcSet":3431,"type":21},"/blog_images/ep1-warren-buffett/2.webp",[23,3433],{"alt":3434,"src":3435,"style":624,"width":625,"height":626,"decoding":30},"Chart showing the overall portfolio growth of Warren Buffett's portfolio from 2013 to 2025.","/blog_images/ep1-warren-buffett/2.png",[35,3437,3438],{},"The growth line is not smooth. The sharp dip in early 2020 shows the equity portfolio taking the full force of the COVID-19 crash, which is the single largest decline in the tracked period.",[10,3440,12,3441,12,3444,12,3447],{},[14,3442],{"srcSet":3443,"type":17},"/blog_images/ep1-warren-buffett/3.avif",[14,3445],{"srcSet":3446,"type":21},"/blog_images/ep1-warren-buffett/3.webp",[23,3448],{"alt":3449,"src":3450,"style":624,"width":625,"height":626,"decoding":30},"Key stats of Warren Buffett's portfolio including Beta, Max Drawdown, and Drawdown Duration.","/blog_images/ep1-warren-buffett/3.png",[35,3452,3453,3454,3457,3458,3461,3462,3465,3466,3469],{},"Three statistics from that 2025 snapshot describe the risk taken. A ",[287,3455,3456],{},"beta of 1.01"," means the portfolio moved almost exactly in line with the broader market, since beta measures sensitivity to market movements with 1.0 as the market itself. A ",[287,3459,3460],{},"max drawdown of -39.14%"," is the worst peak-to-trough fall it suffered. The ",[287,3463,3464],{},"drawdown duration of 451 days"," is the more demanding number: recovering from that bottom took over a year of holding through the decline, which is what ",[219,3467,3468],{"href":1218},"tracking drawdown"," is meant to make visible in advance.",[39,3471,3473],{"id":3472},"what-is-in-warren-buffetts-portfolio","What is in Warren Buffett's portfolio?",[35,3475,3476],{},"Warren Buffett's Berkshire Hathaway equity portfolio held 39 assets in the 13F data analysed here, with the ten largest positions accounting for 87.6% of its value as of the 2025 filing period.",[10,3478,12,3479,12,3482,12,3485],{},[14,3480],{"srcSet":3481,"type":17},"/blog_images/ep1-warren-buffett/4.avif",[14,3483],{"srcSet":3484,"type":21},"/blog_images/ep1-warren-buffett/4.webp",[23,3486],{"alt":3487,"src":3488,"style":624,"width":625,"height":626,"decoding":30},"Pie charts showing Warren Buffett's portfolio allocation by stock and by sector.","/blog_images/ep1-warren-buffett/4.png",[35,3490,3491],{},"The top ten holdings in that filing period were:",[44,3493,3494,3500,3506,3512,3518,3524,3530,3536,3542,3548],{},[47,3495,3496,3499],{},[287,3497,3498],{},"Apple (AAPL):"," 24.1%",[47,3501,3502,3505],{},[287,3503,3504],{},"American Express (AXP):"," 17.5%",[47,3507,3508,3511],{},[287,3509,3510],{},"Bank of America (BAC):"," 11.5%",[47,3513,3514,3517],{},[287,3515,3516],{},"Coca-Cola Co (KO):"," 10.4%",[47,3519,3520,3523],{},[287,3521,3522],{},"Chevron Corp (CVX):"," 6.8%",[47,3525,3526,3529],{},[287,3527,3528],{},"Moody's Corp (MCO):"," 4.7%",[47,3531,3532,3535],{},[287,3533,3534],{},"Occidental Petroleum Corp (OXY):"," 4.4%",[47,3537,3538,3541],{},[287,3539,3540],{},"Kraft Heinz Co (KHC):"," 3.5%",[47,3543,3544,3547],{},[287,3545,3546],{},"Chubb Ltd (CB):"," 2.7%",[47,3549,3550,3553],{},[287,3551,3552],{},"Davita Inc (DVA):"," 2.0%",[35,3555,3556,3557,3562,3563,727,3566,733],{},"The top three positions alone account for more than half of the entire equity portfolio. That is not diversification in the conventional sense; it is a deliberate concentration in a few businesses. ",[219,3558,3561],{"href":3559,"rel":3560},"https://www.youtube.com/watch?v=z85iiX2QWqU",[240],"On diversification, Buffett and Munger"," even stated \"Three wonderful businesses will be better than a hundred average businesses.\" By sector, the same 2025 data shows a heavy tilt towards ",[287,3564,3565],{},"Financial Services (39.9%)",[287,3567,3568],{},"Technology (25.6%)",[35,3570,3571,3572,3575],{},"A portfolio this concentrated sits at the far end of the debate over ",[219,3573,3574],{"href":878},"how many stocks an investor should own",", where theory points to 20 to 30 names and practitioners like Buffett hold far fewer.",[39,3577,3579],{"id":3578},"does-warren-buffett-still-beat-the-sp-500","Does Warren Buffett still beat the S&P 500?",[35,3581,3582],{},"Over the 2013-2025 period covered by this analysis, Warren Buffett's equity portfolio returned an annualised 10.87% while the S&P 500 returned 12.03%, so the index edged him out over the full window.",[10,3584,12,3585,12,3588,12,3591],{},[14,3586],{"srcSet":3587,"type":17},"/blog_images/ep1-warren-buffett/5.avif",[14,3589],{"srcSet":3590,"type":21},"/blog_images/ep1-warren-buffett/5.webp",[23,3592],{"alt":3593,"src":3594,"style":624,"width":625,"height":626,"decoding":30},"Table comparing the annualized returns of Buffett's portfolio against benchmarks like the S&P 500.","/blog_images/ep1-warren-buffett/5.png",[35,3596,3597],{},"That single number hides a lot. A year-by-year breakdown of the same dataset shows outperformance arriving in bursts rather than steadily.",[10,3599,12,3600,12,3603,12,3606],{},[14,3601],{"srcSet":3602,"type":17},"/blog_images/ep1-warren-buffett/6.avif",[14,3604],{"srcSet":3605,"type":21},"/blog_images/ep1-warren-buffett/6.webp",[23,3607],{"alt":3608,"src":3609,"style":624,"width":625,"height":626,"decoding":30},"Year-by-year performance breakdown of Buffett's portfolio vs. the S&P 500.","/blog_images/ep1-warren-buffett/6.png",[35,3611,3612,3613,3616],{},"In some years, such as 2019, Buffett's portfolio beat the market by over 10 percentage points. In others it lagged. Two caveats belong with any comparison of this kind: 13F data covers only US-listed equity positions and excludes Berkshire's cash, bonds and wholly-owned businesses, and the result depends on the start date chosen. Running the same test on your own holdings is a matter of ",[219,3614,3615],{"href":2137},"benchmarking the portfolio against an index"," over a period you did not pick after the fact.",[39,3618,3620],{"id":3619},"how-much-dividend-income-does-warren-buffetts-portfolio-generate","How much dividend income does Warren Buffett's portfolio generate?",[35,3622,3623],{},"Warren Buffett's equity portfolio was projected to generate nearly $4.8 billion in annual dividend income in the 2025 analysis, with 29 of its 39 holdings paying a dividend.",[10,3625,12,3626,12,3629,12,3632],{},[14,3627],{"srcSet":3628,"type":17},"/blog_images/ep1-warren-buffett/10.avif",[14,3630],{"srcSet":3631,"type":21},"/blog_images/ep1-warren-buffett/10.webp",[23,3633],{"alt":3634,"src":3635,"style":624,"width":625,"height":626,"decoding":30},"Dashboard showing the projected annual dividend income and Yield on Cost for Buffett's portfolio.","/blog_images/ep1-warren-buffett/10.png",[35,3637,3638,3639,3642,3643,3645],{},"The revealing figure is the ",[287,3640,3641],{},"yield on cost of 3.25%"," against a current dividend yield of 1.81% in that same 2025 snapshot. ",[219,3644,2812],{"href":221}," divides the current annual dividend by the price originally paid, rather than by today's price. A yield on cost well above the current yield means the shares were bought years earlier at much lower prices, and the dividend has grown since. It is a description of holding period, not of stock selection: a new buyer of the identical stocks today would receive the 1.81%.",[10,3647,12,3648,12,3651,12,3654],{},[14,3649],{"srcSet":3650,"type":17},"/blog_images/ep1-warren-buffett/11.avif",[14,3652],{"srcSet":3653,"type":21},"/blog_images/ep1-warren-buffett/11.webp",[23,3655],{"alt":3656,"src":3657,"style":624,"width":625,"height":626,"decoding":30},"Dividend forecast for Chevron (CVX) within the portfolio, showing quarterly payments.","/blog_images/ep1-warren-buffett/11.png",[35,3659,3660],{},"Drilling into a single holding shows where that income comes from. Chevron (CVX) alone contributed a consistent payment of around $200 million every quarter in the projected dividend schedule.",[39,3662,3664],{"id":3663},"how-often-does-warren-buffett-trade","How often does Warren Buffett trade?",[35,3666,3667],{},"Warren Buffett trades considerably more than his \"buy and hold\" reputation implies: the 13F data records 101 trades in 2020 and $176 billion of stock sold in 2024, while portfolio turnover stayed near 14% even in the most active year.",[10,3669,12,3670,12,3673,12,3676],{},[14,3671],{"srcSet":3672,"type":17},"/blog_images/ep1-warren-buffett/7.avif",[14,3674],{"srcSet":3675,"type":21},"/blog_images/ep1-warren-buffett/7.webp",[23,3677],{"alt":3678,"src":3679,"style":624,"width":625,"height":626,"decoding":30},"Bar chart showing the number of buy and sell trades per year in Buffett's portfolio.","/blog_images/ep1-warren-buffett/7.png",[35,3681,3682],{},"2020 was the busiest year for trade count in the tracked period, with 101 total trades made during the market disruption of that year. 2024 was the largest by value: Berkshire sold a reported $176 billion of stock, a clear pattern of trimming positions and reducing equity exposure.",[10,3684,12,3685,12,3688,12,3691],{},[14,3686],{"srcSet":3687,"type":17},"/blog_images/ep1-warren-buffett/8.avif",[14,3689],{"srcSet":3690,"type":21},"/blog_images/ep1-warren-buffett/8.webp",[23,3692],{"alt":3693,"src":3694,"style":624,"width":625,"height":626,"decoding":30},"Table view of trading activity, showing buy value, sell value, and portfolio turnover per year.","/blog_images/ep1-warren-buffett/8.png",[35,3696,3697,3698,3701],{},"Trade count on its own overstates the activity. ",[219,3699,3700],{"href":1691},"Portfolio turnover",", which measures the proportion of a portfolio replaced over a year, stayed around 14% at its peak in this data. A 14% turnover implies an average holding period of roughly seven years, so the picture is an investor fine-tuning positions rather than trading them.",[39,3703,3705],{"id":3704},"where-did-warren-buffetts-alpha-come-from","Where did Warren Buffett's alpha come from?",[35,3707,3708],{},"The largest single source of excess return in Warren Buffett's tracked portfolio was Apple (AAPL), where one of his earliest 2016 purchases returned +684% against +208% from the S&P 500 over the same holding period.",[10,3710,12,3711,12,3714,12,3717],{},[14,3712],{"srcSet":3713,"type":17},"/blog_images/ep1-warren-buffett/9.avif",[14,3715],{"srcSet":3716,"type":21},"/blog_images/ep1-warren-buffett/9.webp",[23,3718],{"alt":3719,"src":3720,"style":624,"width":625,"height":626,"decoding":30},"Individual trade log for Apple (AAPL), showing the massive excess return vs. the S&P 500.","/blog_images/ep1-warren-buffett/9.png",[35,3722,3723,3724,3727,3728,3732],{},"That position is reported with ",[287,3725,3726],{},"+475% of excess return"," over the benchmark for the same period, which is ",[219,3729,3731],{"href":3730},"/blog/what-is-alpha/","alpha",": return above what the market delivered over the identical window. It shows that a portfolio can trail the index on a full-period annualised basis while still containing individual decisions that beat it enormously. Concentration is what lets a single position matter that much, and it works in both directions.",[39,3734,3736],{"id":3735},"what-can-investors-learn-from-warren-buffetts-portfolio","What can investors learn from Warren Buffett's portfolio?",[35,3738,3739],{},"Three lessons come out of the 2013-2025 data on Warren Buffett's equity portfolio, and none of them depends on having Berkshire Hathaway's capital.",[178,3741,3742,3748,3754],{},[47,3743,3744,3747],{},[287,3745,3746],{},"Conviction concentrates returns."," With the top ten holdings at 87.6% of the portfolio, a single decision such as Apple can move the whole result. The same structure means a single mistake would too.",[47,3749,3750,3753],{},[287,3751,3752],{},"Patience is measurable."," A -39.14% drawdown that took 451 days to recover is the price of admission, and most investors sell somewhere inside that window.",[47,3755,3756,3759],{},[287,3757,3758],{},"\"Buy and hold\" is not \"buy and forget.\""," 101 trades in 2020 and $176 billion sold in 2024 sit alongside a 14% turnover. The positions are held for years and still actively managed.",[39,3761,320],{"id":319},[140,3763,3765],{"id":3764},"what-is-a-13f-filing-and-what-does-it-leave-out","What is a 13F filing and what does it leave out?",[35,3767,3768],{},"A Form 13F is a quarterly report that US institutional investment managers with over $100 million in qualifying assets must file with the SEC, listing their US-listed equity positions. It is filed within 45 days of quarter end, so it is always backward-looking. A 13F excludes cash, bonds, foreign-listed shares, short positions and wholly-owned businesses, which is why it shows only part of Berkshire Hathaway.",[140,3770,3772],{"id":3771},"why-does-13f-based-analysis-estimate-trade-prices","Why does 13F-based analysis estimate trade prices?",[35,3774,3775],{},"A 13F reports the positions held at the end of a quarter, not the individual trades or the prices paid. Any performance analysis built on 13F data therefore has to estimate when a position changed and at what price, conventionally using quarter-end values. That estimation is why 13F-derived returns approximate a manager's results rather than reproduce them exactly.",[140,3777,3779],{"id":3778},"what-does-a-beta-of-101-mean-for-a-portfolio","What does a beta of 1.01 mean for a portfolio?",[35,3781,3782],{},"A beta of 1.01 means a portfolio has historically moved almost exactly in step with its reference market: a 10% market move corresponds to roughly a 10.1% move in the portfolio. Beta says nothing about whether returns were good, only about how closely the portfolio tracked market swings. A concentrated portfolio can still have a beta near 1.",[140,3784,3786],{"id":3785},"can-an-individual-investor-copy-a-13f-portfolio","Can an individual investor copy a 13F portfolio?",[35,3788,3789],{},"An individual can buy the same listed stocks a 13F discloses, but not the same portfolio. The filing arrives up to 45 days after quarter end, so the prices have moved; it omits the cash, private businesses and insurance operations that shape Berkshire Hathaway's risk; and it does not disclose the cost basis behind a figure like a 3.25% yield on cost, which came from purchases made years earlier.",[140,3791,3793],{"id":3792},"why-is-yield-on-cost-higher-than-dividend-yield","Why is yield on cost higher than dividend yield?",[35,3795,3796],{},"Yield on cost divides a holding's current annual dividend by the price originally paid for it, while dividend yield divides the same dividend by today's price. When a share has risen and its dividend has grown, yield on cost rises above dividend yield. The gap measures how long you have held and how much the dividend grew, not how attractive the stock is now.",[39,3798,3800],{"id":3799},"how-to-track-a-concentrated-portfolio-in-portseido","How to track a concentrated portfolio in Portseido",[35,3802,3803],{},"Portseido is the portfolio tracker used to produce the analysis on this page, and it does the same job on a personal portfolio. It consolidates holdings across multiple brokers and currencies, calculates time-weighted and money-weighted returns, tracks cost basis, records dividend income and yield on cost, benchmarks the portfolio against indices and ETFs, and reports allocation and drawdown so concentration and its cost are both visible.",[35,3805,3806,3807],{},"That combination is what makes a Buffett-style comparison possible on your own holdings: position weights, the drawdown you actually sat through, and the return next to an index over the same period. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,3808,363],{"href":361,"rel":3809},[240],{"title":400,"searchDepth":401,"depth":401,"links":3811},[3812,3813,3814,3815,3816,3817,3818,3819,3820,3827],{"id":41,"depth":404,"text":42},{"id":3419,"depth":404,"text":3420},{"id":3472,"depth":404,"text":3473},{"id":3578,"depth":404,"text":3579},{"id":3619,"depth":404,"text":3620},{"id":3663,"depth":404,"text":3664},{"id":3704,"depth":404,"text":3705},{"id":3735,"depth":404,"text":3736},{"id":319,"depth":404,"text":320,"children":3821},[3822,3823,3824,3825,3826],{"id":3764,"depth":401,"text":3765},{"id":3771,"depth":401,"text":3772},{"id":3778,"depth":401,"text":3779},{"id":3785,"depth":401,"text":3786},{"id":3792,"depth":401,"text":3793},{"id":3799,"depth":404,"text":3800},"An analysis of Warren Buffett's Berkshire Hathaway equity portfolio from 13F filings: performance versus the S&P 500, top holdings, dividends and turnover.",{"slug":3830},"ep1-warren-buffett-portfolio","/blog/ep1-warren-buffett-portfolio","2025-08-01",{"title":3362,"description":3828},"A deep dive into Warren Buffett's Berkshire Hathaway portfolio, uncovering his true performance vs. the S&P 500, top holdings, dividend strategy, and more, powered by Portseido.","Warren Buffett Portfolio 2025 - Performance, Holdings, and Lessons","/blog_images/ep1-warren-buffett/banner.png","blog/ep1-warren-buffett-portfolio","hBfrRSvw8unhUXNBn3djN75N4ye_A8UGzTMWfiW9mpA",{"id":3840,"title":3841,"body":3842,"description":4366,"extension":428,"meta":4367,"navigation":430,"path":4369,"publishedAt":4370,"seo":4371,"seo_description":4372,"seo_title":4373,"social_image":4374,"stem":4375,"updatedAt":4370,"__hash__":4376},"blog/blog/ep2-cathie-wook-ark-portfolio.md","Cathie Wood ARK Portfolio Analysis 2025",{"type":7,"value":3843,"toc":4349},[3844,3847,3854,3856,3873,3877,3880,3888,3892,3895,3910,3921,3935,3954,3962,3966,3969,3983,3986,4069,4072,4079,4093,4096,4100,4103,4117,4169,4186,4193,4197,4200,4214,4246,4249,4253,4256,4270,4273,4276,4280,4283,4303,4306,4308,4312,4315,4319,4322,4326,4329,4333,4336,4340,4343],[35,3845,3846],{},"Cathie Wood founded ARK Investment Management in 2014 and built it around a single idea: concentrate capital in companies expected to drive disruptive innovation, and accept the volatility that comes with it. Her flagship ARK Innovation strategy became a household name during the 2020 boom and then gave much of it back. This analysis loads ARK's publicly available 13F filings into the Portseido portfolio tracker to see what the 2017-2025 data shows about performance, concentration and risk.",[3375,3848,3849],{},[35,3850,3851,3853],{},[287,3852,3381],{}," This analysis is based on publicly available 13F data from 2017-2025. Trade dates and prices are estimated at quarter-end. Some tickers may be missing. The actual dollar value must be multiplied by 1 million for real scale. Every figure below reflects that dataset as of the December 2025 analysis and has not been recalculated since.",[39,3855,42],{"id":41},[44,3857,3858,3861,3864,3867,3870],{},[47,3859,3860],{},"Cathie Wood's ARK portfolio showed a time-weighted return of +233.28% and a money-weighted return of -34.97% in the 2017-2025 13F data analysed here, a gap caused by when capital arrived rather than by the stock picks.",[47,3862,3863],{},"Cathie Wood's ARK portfolio is concentrated: the top ten holdings were roughly half of its value in the 2025 data, led by Tesla at 9.71%, across a base of more than 200 holdings.",[47,3865,3866],{},"Cathie Wood's ARK portfolio swung from +171.90% in 2020 to -61.35% in 2022 in this dataset, a range that makes it a high-beta strategy rather than a core holding for most investors.",[47,3868,3869],{},"A -61.35% drawdown of the kind ARK recorded in 2022 requires a subsequent gain of about 158% just to return to the starting value, which is why deep losses compound into lost years.",[47,3871,3872],{},"Cathie Wood's ARK portfolio had a trailing twelve-month yield of 0.09% in the 2025 data, so it is a capital-appreciation strategy and not a source of investment income.",[39,3874,3876],{"id":3875},"what-is-cathie-woods-ark-portfolio","What is Cathie Wood's ARK portfolio?",[35,3878,3879],{},"Cathie Wood's ARK portfolio is a set of actively managed, high-conviction positions in companies ARK Investment Management expects to benefit from disruptive innovation, concentrated in technology, genomics, fintech and related themes.",[35,3881,3882,3883,3887],{},"ARK's strategy is the opposite of an index approach: rather than owning the market, it takes large positions in a small number of names it believes the market has mispriced. That produces the two features visible throughout the 2017-2025 data below — exceptional returns when growth is rewarded, and severe drawdowns when it is not. It contrasts sharply with the ",[219,3884,3886],{"href":3885},"/blog/ep1-warren-buffett-portfolio/","value-oriented Warren Buffett portfolio analysed in the previous episode",", which is concentrated in a handful of established, cash-generating businesses rather than in growth themes.",[39,3889,3891],{"id":3890},"why-do-arks-time-weighted-and-money-weighted-returns-differ-so-much","Why do ARK's time-weighted and money-weighted returns differ so much?",[35,3893,3894],{},"Cathie Wood's ARK portfolio showed a time-weighted return of +233.28% and a money-weighted return of -34.97% in the 2017-2025 analysis, because most of the capital arrived after the largest gains had already happened.",[10,3896,12,3897,12,3900,12,3903],{},[14,3898],{"srcSet":3899,"type":17},"/blog_images/ep2-cathie-wook-ark-portfolio/return-twr.avif",[14,3901],{"srcSet":3902,"type":21},"/blog_images/ep2-cathie-wook-ark-portfolio/return-twr.webp",[23,3904],{"alt":3905,"src":3906,"style":3907,"width":3908,"height":3909,"decoding":30},"ARK TWR Return","/blog_images/ep2-cathie-wook-ark-portfolio/return-twr.png","max-width:100%; height:auto;aspect-ratio:'attr(width) / attr(height)';max-height: 500px",1475,838,[35,3911,3912,3916,3917,3920],{},[219,3913,3915],{"href":3914},"/blog/time-weighted-return/","Time-weighted return"," measures how the investments themselves performed, treating every period equally regardless of how much money was invested at the time. At ",[287,3918,3919],{},"+233.28%",", it says the strategy worked for someone who invested a lump sum at the start of the tracked period and never added or withdrew.",[10,3922,12,3923,12,3926,12,3929],{},[14,3924],{"srcSet":3925,"type":17},"/blog_images/ep2-cathie-wook-ark-portfolio/return-mwr.avif",[14,3927],{"srcSet":3928,"type":21},"/blog_images/ep2-cathie-wook-ark-portfolio/return-mwr.webp",[23,3930],{"alt":3931,"src":3932,"style":3907,"width":3933,"height":3934,"decoding":30},"ARK MWR Return","/blog_images/ep2-cathie-wook-ark-portfolio/return-mwr.png",1462,846,[35,3936,3937,3941,3942,3945,3946,3949,3950,3953],{},[219,3938,3940],{"href":3939},"/blog/money-weighted-return/","Money-weighted return"," counts the size and timing of every cash flow, so it measures what investors collectively earned. At ",[287,3943,3944],{},"-34.97%",", it says the bulk of the capital arrived late, after the run-up. The portfolio value in the tracked dataset sits at $15,522, and the benchmark comparison puts the same capital deployed into the S&P 500 over the identical timeframe at a projected ",[287,3947,3948],{},"$50,423.29",", an approximate ",[287,3951,3952],{},"+207.15%"," on a money-weighted basis.",[35,3955,3956,3957,3961],{},"The gap between the two figures is the lesson of this analysis, and it is not unique to ARK: whenever money chases a strategy after it has already performed, the published return and the investor's return separate. Settling the difference between ",[219,3958,3960],{"href":3959},"/blog/should-you-use-simple-return-time-weighted-or-money-weighted/","simple return, time-weighted return and money-weighted return"," is worth doing before comparing yourself with any fund.",[39,3963,3965],{"id":3964},"how-has-cathie-woods-ark-portfolio-performed-year-by-year","How has Cathie Wood's ARK portfolio performed year by year?",[35,3967,3968],{},"Cathie Wood's ARK portfolio recorded swings from +171.90% in 2020 to -61.35% in 2022 in the 2017-2025 data, a year-to-year range far wider than the S&P 500 over the same period.",[10,3970,12,3971,12,3974,12,3977],{},[14,3972],{"srcSet":3973,"type":17},"/blog_images/ep2-cathie-wook-ark-portfolio/historical.avif",[14,3975],{"srcSet":3976,"type":21},"/blog_images/ep2-cathie-wook-ark-portfolio/historical.webp",[23,3978],{"alt":3979,"src":3980,"style":3907,"width":3981,"height":3982,"decoding":30},"ARK Historical returns","/blog_images/ep2-cathie-wook-ark-portfolio/historical.png",1207,881,[35,3984,3985],{},"The annual money-weighted breakdown in the tracked data reads as follows:",[80,3987,3988,4001],{},[83,3989,3990],{},[86,3991,3992,3995,3998],{},[89,3993,3994],{},"Year",[89,3996,3997],{},"ARK portfolio",[89,3999,4000],{},"Versus the S&P 500",[96,4002,4003,4014,4025,4036,4047,4058],{},[86,4004,4005,4008,4011],{},[101,4006,4007],{},"2020",[101,4009,4010],{},"+171.90%",[101,4012,4013],{},"Outperformed by 140.04 percentage points",[86,4015,4016,4019,4022],{},[101,4017,4018],{},"2021",[101,4020,4021],{},"-21.73%",[101,4023,4024],{},"S&P 500 climbed +26.46%",[86,4026,4027,4030,4033],{},[101,4028,4029],{},"2022",[101,4031,4032],{},"-61.35%",[101,4034,4035],{},"Underperformed by 41.87 percentage points",[86,4037,4038,4041,4044],{},[101,4039,4040],{},"2023",[101,4042,4043],{},"+58.43%",[101,4045,4046],{},"S&P 500 gained +24.27%",[86,4048,4049,4052,4055],{},[101,4050,4051],{},"2024",[101,4053,4054],{},"+11.31%",[101,4056,4057],{},"S&P 500 gained +23.89%",[86,4059,4060,4063,4066],{},[101,4061,4062],{},"2025 (YTD)",[101,4064,4065],{},"+29.75%",[101,4067,4068],{},"S&P 500 gained +15.55%",[35,4070,4071],{},"Two years carry the story. 2020 was the breakout, when pandemic-era liquidity flowed into disruptive innovation. 2022 was the crash, when rising rates repriced long-duration growth stocks and the portfolio fell -61.35%.",[35,4073,4074,4075,4078],{},"The asymmetry matters more than the averages. A 20% decline recovers in months during a bull market; a 60% decline needs years of exceptional performance before the position is merely back where it started. That relationship is why ",[219,4076,4077],{"href":1218},"maximum drawdown"," tells you more about a high-growth strategy than its best year does.",[10,4080,12,4081,12,4084,12,4087],{},[14,4082],{"srcSet":4083,"type":17},"/blog_images/ep2-cathie-wook-ark-portfolio/benchmarks.avif",[14,4085],{"srcSet":4086,"type":21},"/blog_images/ep2-cathie-wook-ark-portfolio/benchmarks.webp",[23,4088],{"alt":4089,"src":4090,"style":3907,"width":4091,"height":4092,"decoding":30},"ARK's portfolio vs. the benchmark.","/blog_images/ep2-cathie-wook-ark-portfolio/benchmarks.png",1472,722,[35,4094,4095],{},"The benchmark view in the tracked data shows ARK trailing the NASDAQ, which is more growth-heavy, while sitting ahead of the broader S&P 500 on that chart's basis. Read it alongside the -34.97% money-weighted figure rather than instead of it: the two answer different questions, one about how the holdings performed and one about what investors in them earned.",[39,4097,4099],{"id":4098},"what-are-the-top-holdings-in-cathie-woods-ark-portfolio","What are the top holdings in Cathie Wood's ARK portfolio?",[35,4101,4102],{},"The top ten holdings in Cathie Wood's ARK portfolio made up roughly half of its value in the 2025 filing data, led by Tesla at 9.71%, out of a base of more than 200 holdings.",[10,4104,12,4105,12,4108,12,4111],{},[14,4106],{"srcSet":4107,"type":17},"/blog_images/ep2-cathie-wook-ark-portfolio/allocation.avif",[14,4109],{"srcSet":4110,"type":21},"/blog_images/ep2-cathie-wook-ark-portfolio/allocation.webp",[23,4112],{"alt":4113,"src":4114,"style":3907,"width":4115,"height":4116,"decoding":30},"ARK's portfolio allocation by stock and by sector or theme","/blog_images/ep2-cathie-wook-ark-portfolio/allocation.png",1471,1138,[178,4118,4119,4124,4129,4134,4139,4144,4149,4154,4159,4164],{},[47,4120,4121],{},[287,4122,4123],{},"Tesla (TSLA) — 9.71%",[47,4125,4126],{},[287,4127,4128],{},"Roku (ROKU) — 6.05%",[47,4130,4131],{},[287,4132,4133],{},"Robinhood Markets (HOOD) — 5.99%",[47,4135,4136],{},[287,4137,4138],{},"Shopify (SHOP) — 5.31%",[47,4140,4141],{},[287,4142,4143],{},"Palantir Technologies (PLTR) — 4.93%",[47,4145,4146],{},[287,4147,4148],{},"Coinbase (COIN) — 4.27%",[47,4150,4151],{},[287,4152,4153],{},"Roblox (RBLX) — 3.81%",[47,4155,4156],{},[287,4157,4158],{},"CRISPR Therapeutics (CRSP) — 3.67%",[47,4160,4161],{},[287,4162,4163],{},"Advanced Micro Devices (AMD) — 3.65%",[47,4165,4166],{},[287,4167,4168],{},"Tempus AI (TEM) — 3.26%",[35,4170,4171,4172,4175,4176,4179,4180,727,4183,733],{},"By sector, the same 2025 data is weighted towards technology and the sectors that intersect with it: ",[287,4173,4174],{},"Technology 35.8%",", ",[287,4177,4178],{},"Healthcare 21.9%"," (largely genomics and biotech), ",[287,4181,4182],{},"Consumer Cyclical 13.6%",[287,4184,4185],{},"Communication Services 10.1%",[35,4187,4188,4189,4192],{},"The structure is a long tail behind a concentrated head. Two hundred-plus holdings sounds diversified, but with half the value in ten names, the ",[219,4190,4191],{"href":1762},"portfolio weight"," of the tail positions is too small to contribute much either way. Technology and healthcare together are over half the portfolio, so the holdings also tend to rise and fall on the same macro news.",[39,4194,4196],{"id":4195},"which-ark-positions-produced-the-biggest-gains","Which ARK positions produced the biggest gains?",[35,4198,4199],{},"The largest unrealised gains in Cathie Wood's ARK portfolio in the 2025 data came from Robinhood at +1,076%, Palantir at +829.52% and Shopify at +271.53%.",[10,4201,12,4202,12,4205,12,4208],{},[14,4203],{"srcSet":4204,"type":17},"/blog_images/ep2-cathie-wook-ark-portfolio/holding.avif",[14,4206],{"srcSet":4207,"type":21},"/blog_images/ep2-cathie-wook-ark-portfolio/holding.webp",[23,4209],{"alt":4210,"src":4211,"style":3907,"width":4212,"height":4213,"decoding":30},"ARK holdings","/blog_images/ep2-cathie-wook-ark-portfolio/holding.png",1468,1083,[44,4215,4216,4222,4228,4234,4240],{},[47,4217,4218,4221],{},[287,4219,4220],{},"Robinhood (HOOD):"," +1,076%, from an average cost of $10.15 to $119.40 at the time of the analysis, held through a long period of scepticism about the business model.",[47,4223,4224,4227],{},[287,4225,4226],{},"Palantir (PLTR):"," +829.52%, from an average cost of $20.20 to $187.75, an early position in AI-driven data analytics.",[47,4229,4230,4233],{},[287,4231,4232],{},"Shopify (SHOP):"," +271.53%, from an average cost of $43.91 to $163.14, on the acceleration in digital retail.",[47,4235,4236,4239],{},[287,4237,4238],{},"Coinbase (COIN):"," +257.93%, from an average cost of $70.57 to $252.61, tied to digital asset adoption cycles.",[47,4241,4242,4245],{},[287,4243,4244],{},"Tesla (TSLA):"," +171.39%, from an average cost of $180.51 to $489.88, the portfolio's largest position by weight.",[35,4247,4248],{},"These are unrealised figures measured against average cost, so they describe positions still held rather than completed round trips. They also make the concentration argument in both directions: a handful of holdings produced most of the upside, and the same structure turned 2022 into a -61.35% year.",[39,4250,4252],{"id":4251},"does-cathie-woods-ark-portfolio-pay-dividends","Does Cathie Wood's ARK portfolio pay dividends?",[35,4254,4255],{},"Cathie Wood's ARK portfolio produces almost no dividend income, with a trailing twelve-month portfolio yield of 0.09% in the 2025 data.",[10,4257,12,4258,12,4261,12,4264],{},[14,4259],{"srcSet":4260,"type":17},"/blog_images/ep2-cathie-wook-ark-portfolio/div.avif",[14,4262],{"srcSet":4263,"type":21},"/blog_images/ep2-cathie-wook-ark-portfolio/div.webp",[23,4265],{"alt":4266,"src":4267,"style":3907,"width":4268,"height":4269,"decoding":30},"ARK's dividend and cash flow metrics dashboard","/blog_images/ep2-cathie-wook-ark-portfolio/div.png",1466,888,[35,4271,4272],{},"That is by design. High-growth companies typically reinvest earnings into research, expansion and acquisitions rather than paying them out, so a portfolio built around disruptive innovation shows a near-zero yield almost by construction, and all of its return has to come from capital appreciation.",[35,4274,4275],{},"The consequence is that ARK is not a vehicle for an income investor, who would be selecting on dividend yield and payout consistency instead. It also means there is no dividend cushion during a drawdown: in a year like 2022, a 0.09% yield offsets essentially none of a -61.35% decline.",[39,4277,4279],{"id":4278},"what-can-investors-learn-from-cathie-woods-ark-portfolio","What can investors learn from Cathie Wood's ARK portfolio?",[35,4281,4282],{},"The 2017-2025 data on Cathie Wood's ARK portfolio produces three lessons that apply to any concentrated growth strategy, not just this one.",[178,4284,4285,4291,4297],{},[47,4286,4287,4290],{},[287,4288,4289],{},"The published return is not your return."," A +233.28% time-weighted return alongside a -34.97% money-weighted return shows that entry timing can invert the outcome of a strategy that genuinely worked.",[47,4292,4293,4296],{},[287,4294,4295],{},"A few positions carry the portfolio."," Gains of +1,076% in Robinhood, +829.52% in Palantir and +271.53% in Shopify mattered more than the entire long tail of holdings combined.",[47,4298,4299,4302],{},[287,4300,4301],{},"Drawdown mathematics is unforgiving."," The -61.35% fall in 2022 required roughly a 158% gain to return to break-even, while a 19% index decline needs about 24%. Deep losses cost years, not months.",[35,4304,4305],{},"Over the 2020-2025 stretch covered here, the strategy underperformed a diversified index approach on a multi-year basis, which is an argument for sizing this kind of exposure deliberately rather than an argument against holding any of it.",[39,4307,320],{"id":319},[140,4309,4311],{"id":4310},"what-is-a-13f-filing-and-what-does-it-show-about-ark","What is a 13F filing and what does it show about ARK?",[35,4313,4314],{},"A Form 13F is a quarterly report that US institutional investment managers with over $100 million in qualifying assets must file with the SEC, listing their US-listed equity positions. It is filed within 45 days of quarter end, so it always describes the past. A 13F shows positions held at a date, not the individual trades, which is why any analysis built on it estimates trade dates and prices.",[140,4316,4318],{"id":4317},"how-much-does-a-portfolio-need-to-gain-to-recover-a-61-loss","How much does a portfolio need to gain to recover a 61% loss?",[35,4320,4321],{},"A portfolio that falls 61% needs a gain of about 158% to return to its starting value, because the recovery is calculated on the smaller remaining balance. The formula is 1 divided by the remaining fraction, minus one: 1 / 0.39 - 1 = 1.58. The same arithmetic makes a 19% decline need only about 24% to recover.",[140,4323,4325],{"id":4324},"why-can-a-funds-published-return-differ-from-what-its-investors-earned","Why can a fund's published return differ from what its investors earned?",[35,4327,4328],{},"A fund's published return is normally time-weighted, which ignores when investors put money in, while an individual's return is money-weighted and depends entirely on it. If most money arrives after a strong run, the average investor's money-weighted return can be negative while the fund's published time-weighted return is strongly positive.",[140,4330,4332],{"id":4331},"is-a-concentrated-growth-portfolio-suitable-as-a-core-holding","Is a concentrated growth portfolio suitable as a core holding?",[35,4334,4335],{},"A concentrated growth portfolio behaves as a satellite position rather than a core one for most investors, because its range of outcomes is wide enough to change a financial plan on its own. The decisive question is not the expected return but whether you would hold the position through a 60% decline, since selling inside one converts volatility into a permanent loss.",[39,4337,4339],{"id":4338},"how-to-track-a-high-growth-portfolio-in-portseido","How to track a high-growth portfolio in Portseido",[35,4341,4342],{},"Portseido is the portfolio tracker used to produce this analysis, and it applies the same measurements to a personal portfolio. It consolidates holdings across multiple brokers and currencies, reports time-weighted and money-weighted returns side by side so the gap between strategy performance and your own entry timing is visible, tracks cost basis, records dividends and yield on cost, benchmarks against indices and ETFs, and shows allocation and drawdown.",[35,4344,4345,4346],{},"For a growth-heavy portfolio, the drawdown and allocation views are the ones that do the work, because they show concentration and the depth of past declines rather than only the headline gain. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,4347,363],{"href":361,"rel":4348},[240],{"title":400,"searchDepth":401,"depth":401,"links":4350},[4351,4352,4353,4354,4355,4356,4357,4358,4359,4365],{"id":41,"depth":404,"text":42},{"id":3875,"depth":404,"text":3876},{"id":3890,"depth":404,"text":3891},{"id":3964,"depth":404,"text":3965},{"id":4098,"depth":404,"text":4099},{"id":4195,"depth":404,"text":4196},{"id":4251,"depth":404,"text":4252},{"id":4278,"depth":404,"text":4279},{"id":319,"depth":404,"text":320,"children":4360},[4361,4362,4363,4364],{"id":4310,"depth":401,"text":4311},{"id":4317,"depth":401,"text":4318},{"id":4324,"depth":401,"text":4325},{"id":4331,"depth":401,"text":4332},{"id":4338,"depth":404,"text":4339},"An analysis of Cathie Wood's ARK Invest portfolio from 13F filings: why its time-weighted and money-weighted returns diverge, its top holdings and its drawdowns.",{"slug":4368},"ep2-cathie-wook-ark-portfolio","/blog/ep2-cathie-wook-ark-portfolio","2025-12-23",{"title":3841,"description":4366},"A high-level look at Cathie Wood's ARK Invest portfolios, focusing on performance, holdings, and investing philosophy.","Cathie Wood ARK Portfolio 2025 - Performance, Holdings, and Strategy","/blog_images/ep2-cathie-wook-ark-portfolio/banner.png","blog/ep2-cathie-wook-ark-portfolio","5sRdaMypZPHChff4pqhsK_O41TrEv8zbFIy-nIvh56Y",{"id":4378,"title":4379,"body":4380,"description":4684,"extension":428,"meta":4685,"navigation":430,"path":4686,"publishedAt":4687,"seo":4688,"seo_description":434,"seo_title":434,"social_image":4393,"stem":4689,"updatedAt":436,"__hash__":4690},"blog/blog/ex-dividend-date.md","What is Ex-Dividend Date?",{"type":7,"value":4381,"toc":4667},[4382,4395,4398,4400,4417,4421,4424,4427,4430,4434,4437,4498,4501,4527,4531,4534,4537,4551,4555,4558,4561,4565,4568,4571,4574,4580,4584,4587,4590,4604,4610,4612,4616,4619,4623,4626,4630,4633,4637,4640,4644,4647,4651,4661],[10,4383,12,4384,12,4387,12,4390],{},[14,4385],{"srcSet":4386,"type":17},"/blog_images/ex-dividend-date/ex-dividend-date-cover.avif",[14,4388],{"srcSet":4389,"type":21},"/blog_images/ex-dividend-date/ex-dividend-date-cover.webp",[23,4391],{"alt":4392,"src":4393,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":4394},"Ex-Dividend Date cover image","/blog_images/ex-dividend-date/ex-dividend-date-cover.png",[33],[35,4396,4397],{},"Every dividend runs through a fixed sequence of four dates, and the ex-dividend date is the one that decides who gets paid. Get the sequence right and dividend eligibility stops being mysterious: it is a cutoff, not a reward for holding, and the market prices it in the moment it passes.",[39,4399,42],{"id":41},[44,4401,4402,4405,4408,4411,4414],{},[47,4403,4404],{},"The ex-dividend date is the first day on which a stock trades without the right to the upcoming dividend, so a buyer on or after that date does not receive the payment.",[47,4406,4407],{},"To receive a dividend you must own the shares before the ex-dividend date; buying on the ex-dividend date itself is too late.",[47,4409,4410],{},"Selling shares on or after the ex-dividend date still entitles you to the dividend, because eligibility was fixed at the market open on that date.",[47,4412,4413],{},"A stock's price typically falls by roughly the dividend amount at the open on the ex-dividend date, which is why buying just before it does not create free income.",[47,4415,4416],{},"The four dividend dates run in order: declaration date, ex-dividend date, record date, payment date.",[39,4418,4420],{"id":4419},"what-is-the-ex-dividend-date","What is the ex-dividend date?",[35,4422,4423],{},"The ex-dividend date is the first date on which a stock trades without the right to the upcoming dividend payment. A stock is described as trading \"ex-dividend\" from that date until the dividend is paid.",[35,4425,4426],{},"The rule for an investor is simple: to receive a declared dividend, you must own the stock before the ex-dividend date. Buy on the ex-dividend date or later and the dividend goes to the person who sold to you, no matter how long you subsequently hold.",[35,4428,4429],{},"The ex-dividend date exists because share ownership changes hands constantly and a company needs one unambiguous cutoff for who is entitled to a payment. Setting that cutoff by trade date, rather than by who happens to be on the register on any given afternoon, makes eligibility deterministic for every buyer and seller.",[39,4431,4433],{"id":4432},"what-are-the-four-dividend-dates-in-order","What are the four dividend dates, in order?",[35,4435,4436],{},"Every dividend follows the same four-date sequence: declaration date, ex-dividend date, record date, and payment date. Each date has a distinct job.",[80,4438,4439,4452],{},[83,4440,4441],{},[86,4442,4443,4446,4449],{},[89,4444,4445],{},"#",[89,4447,4448],{},"Date",[89,4450,4451],{},"What happens",[96,4453,4454,4465,4476,4487],{},[86,4455,4456,4459,4462],{},[101,4457,4458],{},"1",[101,4460,4461],{},"Declaration date",[101,4463,4464],{},"The company's board announces the dividend, its amount, and the record and payment dates",[86,4466,4467,4470,4473],{},[101,4468,4469],{},"2",[101,4471,4472],{},"Ex-dividend date",[101,4474,4475],{},"The stock begins trading without the right to the dividend; buyers from this date on do not receive it",[86,4477,4478,4481,4484],{},[101,4479,4480],{},"3",[101,4482,4483],{},"Record date",[101,4485,4486],{},"The company closes the books and identifies the registered shareholders entitled to the dividend",[86,4488,4489,4492,4495],{},[101,4490,4491],{},"4",[101,4493,4494],{},"Payment date",[101,4496,4497],{},"The company disburses the dividend into entitled shareholders' accounts",[35,4499,4500],{},"Each in full:",[178,4502,4503,4509,4515,4521],{},[47,4504,4505,4508],{},[287,4506,4507],{},"Declaration date."," The declaration date is the day a company's board of directors formally announces an upcoming dividend. The announcement states the dividend per share and the record and payment dates, which creates a legal obligation for the company to pay it.",[47,4510,4511,4514],{},[287,4512,4513],{},"Ex-dividend date."," The ex-dividend date is the first day the stock trades without the right to that dividend. Ownership must be established before this date to qualify.",[47,4516,4517,4520],{},[287,4518,4519],{},"Record date."," The record date is the day the company closes the book on who is entitled to the dividend, by taking a snapshot of its shareholder register. The gap between the ex-dividend date and the record date exists so that trades have time to settle. Under a two-day settlement cycle (T+2) the ex-dividend date falls one business day before the record date; under a one-day cycle (T+1), which US markets adopted in May 2024, the ex-dividend date and the record date fall on the same day.",[47,4522,4523,4526],{},[287,4524,4525],{},"Payment date."," The payment date is when the company actually disburses the dividend to entitled shareholders. This is the day the cash appears in your brokerage account, typically two to five weeks after the record date.",[39,4528,4530],{"id":4529},"will-i-get-the-dividend-if-i-buy-on-the-ex-dividend-date","Will I get the dividend if I buy on the ex-dividend date?",[35,4532,4533],{},"No. Buying a stock on the ex-dividend date does not entitle you to the upcoming dividend, because the ex-dividend date is the first day the stock trades without that right. You must have owned the shares before the ex-dividend date.",[35,4535,4536],{},"The last day to buy and still qualify is therefore the trading day immediately before the ex-dividend date. There is no minimum holding period for eligibility itself: buying the day before the ex-dividend date and selling the day after still collects the dividend.",[10,4538,12,4539,12,4542,12,4545],{},[14,4540],{"srcSet":4541,"type":17},"/blog_images/ex-dividend-date/ex-dividend-date.avif",[14,4543],{"srcSet":4544,"type":21},"/blog_images/ex-dividend-date/ex-dividend-date.webp",[23,4546],{"alt":4547,"src":4548,"style":4549,"width":28,"height":4550,"decoding":30,"fetchPriority":31},"Ex-Dividend date","/blog_images/ex-dividend-date/ex-dividend-date.png","max-width:100%;width:700px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",271,[39,4552,4554],{"id":4553},"will-i-get-the-dividend-if-i-sell-on-the-ex-dividend-date","Will I get the dividend if I sell on the ex-dividend date?",[35,4556,4557],{},"Yes. If you owned the stock before the ex-dividend date and sell it on or after that date, you still receive the upcoming dividend. Entitlement was fixed at the market open on the ex-dividend date and does not travel with the shares afterwards.",[35,4559,4560],{},"This feels counterintuitive, because the cash arrives on the payment date weeks later, by which point you may no longer be a shareholder. It is deliberate. Pinning entitlement to a single cutoff means every buyer and seller knows in advance which side of the trade the dividend belongs to, and the share price reflects that from the ex-dividend date onward.",[39,4562,4564],{"id":4563},"do-stocks-fall-on-the-ex-dividend-date","Do stocks fall on the ex-dividend date?",[35,4566,4567],{},"Yes. A stock's price typically opens lower on the ex-dividend date by approximately the amount of the dividend, because the shares no longer carry the right to that payment. A company that declares a $1 dividend has $1 per share less in assets once it commits to paying it, and buyers from the ex-dividend date on do not receive the $1.",[35,4569,4570],{},"This adjustment is why timing a purchase around the ex-dividend date does not manufacture income. Buy the day before at $50 and you get a $1 dividend on a stock now worth about $49. Buy on the ex-dividend date at about $49 and you keep the extra dollar of purchase price. Either way you hold roughly $50 of value.",[35,4572,4573],{},"The observed drop is approximate rather than exact. Normal trading moves the price on the same day, and in markets where dividends are taxed more heavily than capital gains the drop is often slightly smaller than the full dividend. The adjustment is a strong tendency, not an arithmetic guarantee.",[35,4575,4576,4577,4579],{},"It also explains why the ",[219,4578,2024],{"href":2023}," quoted on a stock is not a bonus on top of the share price. The yield is funded out of the company's assets, and the market marks the price down for it on every ex-dividend date.",[39,4581,4583],{"id":4582},"is-it-better-to-sell-before-or-after-the-ex-dividend-date","Is it better to sell before or after the ex-dividend date?",[35,4585,4586],{},"Selling before or after the ex-dividend date usually makes little material difference, because the share price falls by roughly the dividend at the open on the ex-dividend date. Sell before and you get a higher price; sell after and you get a lower price plus the dividend.",[35,4588,4589],{},"Two things can break the tie:",[44,4591,4592,4598],{},[47,4593,4594,4597],{},[287,4595,4596],{},"Tax."," In many jurisdictions dividend income and capital gains are taxed at different rates, and an investor's own bracket or account type decides which is preferable. Holding in a tax-sheltered account often removes the distinction entirely.",[47,4599,4600,4603],{},[287,4601,4602],{},"Income planning."," An investor living off portfolio income may value the cash payment itself, independently of total return.",[35,4605,4606,4607,4609],{},"The strategy of buying shortly before the ex-dividend date purely to collect the payment, then selling shortly after, is known as dividend capture. It is unreliable for exactly the reason above: the expected gain is roughly cancelled by the price adjustment, while trading costs and tax are certain. Long-term dividend investors generally ignore the ex-dividend calendar altogether and focus on whether the dividend itself is well covered, which is what the ",[219,4608,1935],{"href":1934}," measures.",[39,4611,320],{"id":319},[140,4613,4615],{"id":4614},"how-long-do-i-have-to-hold-a-stock-to-get-its-dividend","How long do I have to hold a stock to get its dividend?",[35,4617,4618],{},"For eligibility, only until the market close on the day before the ex-dividend date. There is no minimum holding period to receive a declared dividend. Tax treatment is a separate matter: in the United States, a dividend is only a qualified dividend, taxed at the lower long-term rate, if the shares were held for more than 60 days within the 121-day window around the ex-dividend date.",[140,4620,4622],{"id":4621},"who-sets-the-ex-dividend-date","Who sets the ex-dividend date?",[35,4624,4625],{},"The stock exchange or the relevant market regulator sets the ex-dividend date, not the company. The company's board declares the dividend amount, the record date and the payment date; the exchange then derives the ex-dividend date from the record date using the market's settlement cycle. This is why the ex-dividend date is announced alongside, rather than by, the company.",[140,4627,4629],{"id":4628},"what-happens-if-i-buy-before-the-ex-dividend-date-but-the-trade-settles-after-it","What happens if I buy before the ex-dividend date but the trade settles after it?",[35,4631,4632],{},"You still receive the dividend. Ex-dividend eligibility is determined by trade date, not settlement date, which is the entire purpose of placing the ex-dividend date ahead of the record date by the length of the settlement cycle. Your broker handles the settlement mechanics; the dividend follows the trade date.",[140,4634,4636],{"id":4635},"does-a-dividend-reinvestment-plan-change-the-ex-dividend-date-rules","Does a dividend reinvestment plan change the ex-dividend date rules?",[35,4638,4639],{},"No. A dividend reinvestment plan changes only what happens to the cash after the payment date, converting it into additional shares instead of a cash balance. Eligibility still depends on owning the shares before the ex-dividend date. Reinvested shares purchased after an ex-dividend date do not retroactively qualify for that dividend.",[140,4641,4643],{"id":4642},"do-etfs-have-ex-dividend-dates","Do ETFs have ex-dividend dates?",[35,4645,4646],{},"Yes. Exchange-traded funds that distribute income have the same four-date sequence as individual stocks, including an ex-dividend date. The fund collects dividends from its underlying holdings throughout the period and distributes them on its own schedule, most commonly quarterly or monthly, with an ex-dividend date set the same way.",[39,4648,4650],{"id":4649},"how-to-track-dividend-dates-and-payments-in-portseido","How to track dividend dates and payments in Portseido",[35,4652,4653,4654,4657,4658,4660],{},"Reconciling which dividends you were actually entitled to, across several brokers and currencies, is the part of dividend investing that quietly eats time. Portseido records every dividend you receive and builds a dividend income history for each holding, so payments are matched to positions without manual bookkeeping, and it reports ",[219,4655,4656],{"href":221},"dividend yield and yield on cost"," from that same record. The ",[219,4659,2899],{"href":2898}," include a dividend calendar and projected income alongside the payment history.",[35,4662,4663,4664],{},"It suits investors holding income-paying stocks and ETFs at more than one broker who want a single view of what was paid and when. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,4665,363],{"href":361,"rel":4666},[240],{"title":400,"searchDepth":401,"depth":401,"links":4668},[4669,4670,4671,4672,4673,4674,4675,4676,4683],{"id":41,"depth":404,"text":42},{"id":4419,"depth":404,"text":4420},{"id":4432,"depth":404,"text":4433},{"id":4529,"depth":404,"text":4530},{"id":4553,"depth":404,"text":4554},{"id":4563,"depth":404,"text":4564},{"id":4582,"depth":404,"text":4583},{"id":319,"depth":404,"text":320,"children":4677},[4678,4679,4680,4681,4682],{"id":4614,"depth":401,"text":4615},{"id":4621,"depth":401,"text":4622},{"id":4628,"depth":401,"text":4629},{"id":4635,"depth":401,"text":4636},{"id":4642,"depth":401,"text":4643},{"id":4649,"depth":404,"text":4650},"The ex-dividend date is the first day a stock trades without the right to the upcoming dividend. Buy on or after it and the seller keeps the payment.",{},"/blog/ex-dividend-date","2023-10-21",{"title":4379,"description":4684},"blog/ex-dividend-date","wzxDSSgC8T3onfQxelipXhuLIu6AfzEzGgFzOwxOEqI",{"id":4,"title":5,"body":4692,"description":427,"extension":428,"meta":4956,"navigation":430,"path":431,"publishedAt":432,"seo":4957,"seo_description":434,"seo_title":434,"social_image":26,"stem":435,"updatedAt":436,"__hash__":437},{"type":7,"value":4693,"toc":4931},[4694,4703,4705,4707,4719,4721,4723,4725,4727,4729,4771,4773,4775,4777,4779,4781,4783,4785,4787,4789,4791,4793,4795,4809,4811,4813,4815,4817,4819,4823,4825,4827,4829,4834,4838,4840,4842,4844,4846,4848,4852,4854,4856,4874,4878,4880,4882,4884,4886,4888,4890,4892,4894,4896,4898,4900,4905,4909],[10,4695,12,4696,12,4698,12,4700],{},[14,4697],{"srcSet":16,"type":17},[14,4699],{"srcSet":20,"type":21},[23,4701],{"alt":25,"src":26,"style":27,"width":28,"height":29,"decoding":30,"fetchPriority":31,"className":4702},[33],[35,4704,37],{},[39,4706,42],{"id":41},[44,4708,4709,4711,4713,4715,4717],{},[47,4710,49],{},[47,4712,52],{},[47,4714,55],{},[47,4716,58],{},[47,4718,61],{},[39,4720,65],{"id":64},[35,4722,68],{},[35,4724,71],{},[39,4726,75],{"id":74},[35,4728,78],{},[80,4730,4731,4739],{},[83,4732,4733],{},[86,4734,4735,4737],{},[89,4736,91],{},[89,4738,94],{},[96,4740,4741,4747,4753,4759,4765],{},[86,4742,4743,4745],{},[101,4744,103],{},[101,4746,106],{},[86,4748,4749,4751],{},[101,4750,111],{},[101,4752,114],{},[86,4754,4755,4757],{},[101,4756,119],{},[101,4758,122],{},[86,4760,4761,4763],{},[101,4762,127],{},[101,4764,130],{},[86,4766,4767,4769],{},[101,4768,135],{},[101,4770,138],{},[140,4772,103],{"id":142},[35,4774,145],{},[140,4776,111],{"id":148},[35,4778,151],{},[140,4780,119],{"id":154},[35,4782,157],{},[140,4784,127],{"id":160},[35,4786,163],{},[140,4788,135],{"id":166},[35,4790,169],{},[39,4792,173],{"id":172},[35,4794,176],{},[178,4796,4797,4799,4801,4803,4805,4807],{},[47,4798,182],{},[47,4800,185],{},[47,4802,188],{},[47,4804,191],{},[47,4806,194],{},[47,4808,197],{},[39,4810,201],{"id":200},[35,4812,204],{},[35,4814,207],{},[39,4816,211],{"id":210},[35,4818,214],{},[35,4820,217,4821,223],{},[219,4822,222],{"href":221},[39,4824,227],{"id":226},[35,4826,230],{},[35,4828,233],{},[35,4830,4831],{},[219,4832,241],{"href":238,"rel":4833},[240],[35,4835,244,4836,249],{},[219,4837,248],{"href":247},[39,4839,253],{"id":252},[35,4841,256],{},[35,4843,259],{},[39,4845,263],{"id":262},[35,4847,266],{},[35,4849,269,4850,274],{},[219,4851,273],{"href":272},[39,4853,278],{"id":277},[35,4855,281],{},[44,4857,4858,4862,4866,4870],{},[47,4859,4860,290],{},[287,4861,289],{},[47,4863,4864,296],{},[287,4865,295],{},[47,4867,4868,302],{},[287,4869,301],{},[47,4871,4872,308],{},[287,4873,307],{},[35,4875,311,4876,316],{},[219,4877,315],{"href":314},[39,4879,320],{"id":319},[140,4881,324],{"id":323},[35,4883,327],{},[140,4885,331],{"id":330},[35,4887,334],{},[140,4889,338],{"id":337},[35,4891,341],{},[140,4893,345],{"id":344},[35,4895,348],{},[39,4897,352],{"id":351},[35,4899,355],{},[35,4901,358,4902],{},[219,4903,363],{"href":361,"rel":4904},[240],[35,4906,4907],{},[287,4908,368],{},[44,4910,4911,4916,4921,4926],{},[47,4912,4913],{},[219,4914,377],{"href":375,"rel":4915},[240],[47,4917,4918],{},[219,4919,384],{"href":382,"rel":4920},[240],[47,4922,4923],{},[219,4924,391],{"href":389,"rel":4925},[240],[47,4927,4928],{},[219,4929,398],{"href":396,"rel":4930},[240],{"title":400,"searchDepth":401,"depth":401,"links":4932},[4933,4934,4935,4942,4943,4944,4945,4946,4947,4948,4949,4955],{"id":41,"depth":404,"text":42},{"id":64,"depth":404,"text":65},{"id":74,"depth":404,"text":75,"children":4936},[4937,4938,4939,4940,4941],{"id":142,"depth":401,"text":103},{"id":148,"depth":401,"text":111},{"id":154,"depth":401,"text":119},{"id":160,"depth":401,"text":127},{"id":166,"depth":401,"text":135},{"id":172,"depth":404,"text":173},{"id":200,"depth":404,"text":201},{"id":210,"depth":404,"text":211},{"id":226,"depth":404,"text":227},{"id":252,"depth":404,"text":253},{"id":262,"depth":404,"text":263},{"id":277,"depth":404,"text":278},{"id":319,"depth":404,"text":320,"children":4950},[4951,4952,4953,4954],{"id":323,"depth":401,"text":324},{"id":330,"depth":401,"text":331},{"id":337,"depth":401,"text":338},{"id":344,"depth":401,"text":345},{"id":351,"depth":404,"text":352},{},{"title":5,"description":427},{"id":4959,"title":4960,"body":4961,"description":5266,"extension":428,"meta":5267,"navigation":430,"path":5268,"publishedAt":5269,"seo":5270,"seo_description":434,"seo_title":434,"social_image":4974,"stem":5271,"updatedAt":436,"__hash__":5272},"blog/blog/how-many-stocks-should-i-own.md","How many stocks should you own?",{"type":7,"value":4962,"toc":5243},[4963,4977,4980,4982,4999,5002,5005,5008,5028,5031,5035,5038,5052,5055,5059,5062,5066,5073,5077,5086,5093,5097,5100,5104,5107,5111,5114,5118,5121,5125,5128,5154,5160,5164,5167,5170,5172,5176,5179,5183,5186,5190,5193,5197,5204,5208,5211,5217,5220],[10,4964,12,4965,12,4968,12,4971],{},[14,4966],{"srcSet":4967,"type":17},"/blog_images/how-many-stocks-should-i-own/how-many-stocks-should-i-own-cover.avif",[14,4969],{"srcSet":4970,"type":21},"/blog_images/how-many-stocks-should-i-own/how-many-stocks-should-i-own-cover.webp",[23,4972],{"alt":4973,"src":4974,"style":4975,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":4976},"How many stocks should I own?","/blog_images/how-many-stocks-should-i-own/how-many-stocks-should-i-own-cover.png","max-width:100%;width:600px;height:auto;aspect-ratio: 'attr(width) / attr(height);margin-left: auto;margin-right: auto;'",[33],[35,4978,4979],{},"\"How many stocks should I own?\" has no single correct answer, but theory and practitioners converge on a narrow band. Portfolio theory points to 20 to 30 stocks as the level where diversification has done most of its work, while several of the most successful investors deliberately hold far fewer. Which end suits you depends on what you know, what you have found, and how much time you can give it.",[39,4981,42],{"id":41},[44,4983,4984,4987,4990,4993,4996],{},[47,4985,4986],{},"Portfolio theory suggests roughly 20 to 30 stocks capture most of the available diversification benefit, after which each additional stock reduces risk only marginally.",[47,4988,4989],{},"Owning more stocks reduces diversifiable risk, the risk specific to one company, but cannot reduce non-diversifiable risk, the market-wide risk measured by beta.",[47,4991,4992],{},"Concentrated investors including Warren Buffett and Charlie Munger argue for owning fewer stocks, on the condition that you genuinely understand each business you own.",[47,4994,4995],{},"The number of stocks you should own depends on your competency, the quality of the opportunities you have found, and the time you can spend monitoring them.",[47,4997,4998],{},"A single broad market index fund holds hundreds of companies, so it delivers wider diversification than a 30-stock portfolio without any per-company research.",[39,5000,4960],{"id":5001},"how-many-stocks-should-you-own",[35,5003,5004],{},"Most investors are well served by 20 to 30 stocks, the range where diversification has captured the bulk of its benefit. Investors who research businesses deeply and want concentration hold fewer, sometimes fewer than ten.",[35,5006,5007],{},"The number is a consequence of three things, not a target in itself:",[178,5009,5010,5016,5022],{},[47,5011,5012,5015],{},[287,5013,5014],{},"Competency."," How many businesses can you actually understand and follow?",[47,5017,5018,5021],{},[287,5019,5020],{},"Opportunities."," How many investments have you found that you rate highly enough to fund?",[47,5023,5024,5027],{},[287,5025,5026],{},"Resources and time."," How many positions can you research and monitor properly?",[35,5029,5030],{},"If the honest answer to all three is \"not many\", the alternative to a badly researched 30-stock portfolio is a broad market index fund, which supplies diversification across hundreds of companies without per-company analysis.",[39,5032,5034],{"id":5033},"what-does-diversification-theory-say-about-the-number-of-stocks","What does diversification theory say about the number of stocks?",[35,5036,5037],{},"Diversification theory says that adding stocks to a portfolio steadily removes company-specific risk, that the benefit of each additional stock shrinks, and that the process stops at the level of market-wide risk, which no amount of stocks can remove.",[10,5039,12,5040,12,5043,12,5046],{},[14,5041],{"srcSet":5042,"type":17},"/blog_images/how-many-stocks-should-i-own/diversifiable-and-non-diversifiable-risks.avif",[14,5044],{"srcSet":5045,"type":21},"/blog_images/how-many-stocks-should-i-own/diversifiable-and-non-diversifiable-risks.webp",[23,5047],{"alt":5048,"src":5049,"style":5050,"width":3098,"height":5051,"loading":670,"decoding":30},"Diversifiable vs Non-Diversifiable Risks","/blog_images/how-many-stocks-should-i-own/diversifiable-and-non-diversifiable-risks.png","max-width:100%; width:895px; height:auto;aspect-ratio:'attr(width) / attr(height)'",553,[35,5053,5054],{},"Diversification distinguishes between two types of risk that behave very differently as a portfolio grows.",[140,5056,5058],{"id":5057},"diversifiable-risks-unsystematic-risks","Diversifiable risks (unsystematic risks)",[35,5060,5061],{},"Diversifiable risks, also called unsystematic risks, are the risks attached to individual companies, such as poor management decisions, industry-specific events, or company-specific issues. Diversification reduces them effectively: in a diversified portfolio, any single company's problems have a limited impact, because not all of your investments are affected in the same way at the same time.",[140,5063,5065],{"id":5064},"non-diversifiable-risks-systematic-risks","Non-diversifiable risks (systematic risks)",[35,5067,5068,5069,5072],{},"Non-diversifiable risks, also called systematic risks, affect the entire market or a broad sector of it, for example economic factors, interest rate changes, political events, and market sentiment. They are typically measured by ",[219,5070,5071],{"href":2971},"the beta of a stock",", which quantifies how sensitive it is to market movements, and they cannot be eliminated by adding more stocks.",[140,5074,5076],{"id":5075},"why-the-benefit-stops-at-around-20-to-30-stocks","Why the benefit stops at around 20 to 30 stocks",[35,5078,5079,5080,5085],{},"The more stocks you add, the more company-specific risk you remove, but the effect of each new stock diminishes quickly. Going from 1 stock to 10 removes a large share of diversifiable risk; going from 30 to 40 removes very little, because what remains is mostly market risk. That is why 20 to 30 is the range most commonly suggested. For further reading, we would suggest ",[219,5081,5084],{"href":5082,"rel":5083},"https://ndvr.com/journal/how-many-stocks-should-you-own",[240],"a research from NDVR"," where they quantify risks and show how the number works out.",[35,5087,5088,5089,5092],{},"Stock count is not the whole of diversification. Thirty stocks in one sector are less diversified than ten across several, and ",[219,5090,5091],{"href":247},"how you split capital across asset classes"," usually matters more than the count of names.",[39,5094,5096],{"id":5095},"what-do-successful-investors-say-about-how-many-stocks-to-own","What do successful investors say about how many stocks to own?",[35,5098,5099],{},"Many successful investors argue that the ideal number of stocks depends on the investor rather than a formula, and most hold fewer than theory suggests. Their reasoning falls into three factors.",[140,5101,5103],{"id":5102},"competency","Competency",[35,5105,5106],{},"Warren Buffett emphasises investing in what you understand. He prefers a relatively small number of stocks to keep his portfolio concentrated, but acknowledges that not everyone is comfortable or competent analysing individual businesses. For those who lack the expertise or the inclination for in-depth analysis, owning a broad market index, essentially owning everything, can be a prudent strategy. Charlie Munger, Buffett's long-time business partner, has stated that investing in three outstanding opportunities is sufficient if you truly comprehend what you are doing.",[140,5108,5110],{"id":5109},"opportunities","Opportunities",[35,5112,5113],{},"The second factor is the quality of the investment opportunities you discover. Peter Lynch and Warren Buffett both advocate investing heavily in the best opportunities available. Buffett famously said, \"To have a super wonderful business and then put money into number 30 or 35 on your list of attractiveness and forgo putting more money into number one just strikes me and Charlie as Madness.\" Peter Lynch echoes this, suggesting that if you find ten equally attractive opportunities, you should consider investing in all of them. On this view, owning only your best ideas makes sense even when they are few.",[140,5115,5117],{"id":5116},"resources-and-time","Resources and time",[35,5119,5120],{},"The number of stocks you own should also reflect the time you have for managing them. Researching and monitoring businesses takes a real commitment, and the more positions you hold, the thinner that time is spread. Bookkeeping is the part worth automating: Portseido consolidates holdings from every broker into one view and keeps each position's weight, cost basis and return up to date, so the time you spend goes on the businesses rather than the spreadsheet.",[39,5122,5124],{"id":5123},"can-you-own-too-many-stocks","Can you own too many stocks?",[35,5126,5127],{},"Yes. Past roughly 30 stocks, each additional position removes very little further risk while adding real monitoring work and diluting the effect of your best ideas.",[44,5129,5130,5136,5142,5148],{},[47,5131,5132,5135],{},[287,5133,5134],{},"Your best ideas stop mattering."," In an equally weighted 60-stock portfolio, a position that doubles moves the total by a little over 1%.",[47,5137,5138,5141],{},[287,5139,5140],{},"Research quality falls."," Time is finite, so more positions usually means shallower work on each.",[47,5143,5144,5147],{},[287,5145,5146],{},"You may be paying for an index."," A portfolio wide enough to track the market delivers index-like returns, which an index fund provides at lower cost and effort.",[47,5149,5150,5153],{},[287,5151,5152],{},"Costs and admin grow."," More positions mean more trades, dividend records and tax reporting.",[35,5155,5156,5157,5159],{},"Position sizing often matters more than the count. Two 25-stock portfolios behave completely differently if one is equally weighted and the other has 40% in a single name, which is why ",[219,5158,4191],{"href":1762}," is worth tracking alongside the number of holdings.",[39,5161,5163],{"id":5162},"do-etfs-and-index-funds-change-how-many-stocks-you-need","Do ETFs and index funds change how many stocks you need?",[35,5165,5166],{},"Yes. A single broad market index fund or ETF already holds hundreds or thousands of companies, so it provides more diversification than a 30-stock portfolio and counts for far more than one holding.",[35,5168,5169],{},"This matters when you mix the two. An investor holding a total market ETF as a core plus five individual stocks is already diversified, and those five are best judged as deliberate bets rather than an under-diversified portfolio. Watch for overlap: if your individual stocks are also the largest holdings of your index fund, your real exposure to them is higher than the position sizes suggest.",[39,5171,320],{"id":319},[140,5173,5175],{"id":5174},"is-10-stocks-enough-to-be-diversified","Is 10 stocks enough to be diversified?",[35,5177,5178],{},"Ten stocks remove a substantial share of company-specific risk, but noticeably less than 20 to 30 do, and the result depends heavily on what those ten are. Ten companies spread across different sectors and geographies are reasonably diversified; ten technology companies are effectively one bet on a single sector.",[140,5180,5182],{"id":5181},"how-many-stocks-should-a-beginner-start-with","How many stocks should a beginner start with?",[35,5184,5185],{},"A beginner is usually better served by starting with a broad market index fund, which diversifies across hundreds of companies immediately, and adding individual stocks only for businesses they have genuinely researched. That avoids the common trap of assembling 20 unresearched positions in the belief that the count alone constitutes diversification.",[140,5187,5189],{"id":5188},"does-the-number-of-sectors-matter-more-than-the-number-of-stocks","Does the number of sectors matter more than the number of stocks?",[35,5191,5192],{},"Sector spread matters at least as much as stock count, because stocks in the same industry tend to fall together on the same news. Thirty stocks concentrated in one sector carry much of the risk profile of a single position, while 15 across unrelated industries diversify far more effectively.",[140,5194,5196],{"id":5195},"can-a-concentrated-portfolio-beat-the-market","Can a concentrated portfolio beat the market?",[35,5198,5199,5200,5203],{},"A concentrated portfolio has a wider range of outcomes than a diversified one, so it can beat the market by more and lose to it by more. The only way to know which happened is to measure it: ",[219,5201,5202],{"href":2137},"comparing your portfolio against a benchmark"," index over several years shows whether concentration was rewarded or simply riskier.",[39,5205,5207],{"id":5206},"how-to-track-a-concentrated-or-diversified-portfolio-in-portseido","How to track a concentrated or diversified portfolio in Portseido",[35,5209,5210],{},"Portseido is a portfolio tracker for investors who want to see what they actually own, whether that is five positions or fifty. It consolidates holdings across brokers and currencies, shows allocation and the weight of every position, calculates time-weighted and money-weighted returns, tracks cost basis, dividends and yield on cost, and reports drawdown so you can see the cost of concentration. You can also benchmark the portfolio against indices and ETFs to test whether your stock count is working.",[35,5212,5213,5214],{},"Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations or tell you how many stocks to hold. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,5215,363],{"href":361,"rel":5216},[240],[35,5218,5219],{},"Sources:",[178,5221,5222,5229,5236],{},[47,5223,5224],{},[219,5225,5228],{"href":5226,"rel":5227},"https://buffett.cnbc.com/video/1996/05/06/afternoon-session---1996-berkshire-hathaway-annual-meeting.html",[240],"Berkshire Hathaway 1996 Annual Meeting",[47,5230,5231],{},[219,5232,5235],{"href":5233,"rel":5234},"https://www.youtube.com/watch?v=nHWYwsy0Hhc",[240],"Charlie Munger Interview",[47,5237,5238],{},[219,5239,5242],{"href":5240,"rel":5241},"https://youtu.be/myu4Nv0pt0U?si=ZAO6wQevbToNeGbH&t=2553",[240],"Peter Lynch 1997 Lecture On The Stock Market",{"title":400,"searchDepth":401,"depth":401,"links":5244},[5245,5246,5247,5252,5257,5258,5259,5265],{"id":41,"depth":404,"text":42},{"id":5001,"depth":404,"text":4960},{"id":5033,"depth":404,"text":5034,"children":5248},[5249,5250,5251],{"id":5057,"depth":401,"text":5058},{"id":5064,"depth":401,"text":5065},{"id":5075,"depth":401,"text":5076},{"id":5095,"depth":404,"text":5096,"children":5253},[5254,5255,5256],{"id":5102,"depth":401,"text":5103},{"id":5109,"depth":401,"text":5110},{"id":5116,"depth":401,"text":5117},{"id":5123,"depth":404,"text":5124},{"id":5162,"depth":404,"text":5163},{"id":319,"depth":404,"text":320,"children":5260},[5261,5262,5263,5264],{"id":5174,"depth":401,"text":5175},{"id":5181,"depth":401,"text":5182},{"id":5188,"depth":401,"text":5189},{"id":5195,"depth":401,"text":5196},{"id":5206,"depth":404,"text":5207},"Most portfolios capture the bulk of diversification at 20 to 30 stocks, but the right number depends on your competency, opportunities and time.",{},"/blog/how-many-stocks-should-i-own","2023-11-03",{"title":4960,"description":5266},"blog/how-many-stocks-should-i-own","Qs3XamMYwFuel2q_qHf7oY8NZOmUTxagN932ARl51tg",{"id":5274,"title":5275,"body":5276,"description":5670,"extension":428,"meta":5671,"navigation":430,"path":5672,"publishedAt":5673,"seo":5674,"seo_description":434,"seo_title":434,"social_image":5485,"stem":5675,"updatedAt":436,"__hash__":5676},"blog/blog/how-to-benchmark-portfolio.md","Investment Portfolio Benchmarking",{"type":7,"value":5277,"toc":5650},[5278,5281,5283,5300,5304,5307,5310,5314,5317,5320,5323,5327,5330,5333,5359,5362,5366,5369,5459,5467,5471,5474,5487,5491,5494,5503,5514,5527,5531,5534,5544,5548,5551,5563,5566,5570,5573,5605,5607,5611,5614,5618,5621,5625,5628,5632,5635,5639,5642,5648],[35,5279,5280],{},"Benchmarking a portfolio means comparing its results against a reference index or portfolio that represents what the same money could reasonably have earned elsewhere. A return figure on its own is not a verdict: 10% is an excellent year against a market that fell and a poor one against a market that gained 20%. Benchmarking supplies the missing half of the sentence.",[39,5282,42],{"id":41},[44,5284,5285,5288,5291,5294,5297],{},[47,5286,5287],{},"A benchmark is a reference set of assets, usually a broad market index or ETF, used to judge whether a portfolio's performance was good relative to the alternative.",[47,5289,5290],{},"Portfolio benchmarking measures opportunity cost, the return you gave up by investing in your own selections rather than in a comparable set of assets.",[47,5292,5293],{},"A benchmark should have a similar risk and return profile to the portfolio, because comparing against an index of a different risk level explains nothing about skill.",[47,5295,5296],{},"Benchmarking a portfolio properly compares three things: return, risk, and risk-adjusted return, since beating a benchmark by taking more risk is a different result from beating it outright.",[47,5298,5299],{},"Use time-weighted return when comparing a portfolio against an index, because an index has no deposits or withdrawals to distort it.",[39,5301,5303],{"id":5302},"what-is-a-benchmark-in-investing","What is a benchmark in investing?",[35,5305,5306],{},"In investing, a benchmark is a set of reference assets or portfolios used to assess and compare the performance of an investment. A broad market index of an asset category is normally chosen, because it represents a comprehensive cross-section of the relevant assets.",[35,5308,5309],{},"The benchmark supplies a standard against which performance can be measured. It answers the question a return figure alone cannot: compared with what? Indices are used for this because they are transparent, investable through funds, and continuously priced, so the comparison is available at any date.",[39,5311,5313],{"id":5312},"why-is-portfolio-benchmarking-important","Why is portfolio benchmarking important?",[35,5315,5316],{},"Portfolio benchmarking matters because it measures opportunity cost, the benefit you forgo by choosing one investment over the next best alternative. In investing, that forgone benefit is the true cost of a decision.",[35,5318,5319],{},"Comparing every decision against the best available alternative at the time would be impossible in practice, which is why professional investors settle on an index as a standing proxy for the next best alternative. A stock portfolio returning 10% looks respectable in isolation. Set against a benchmark that returned 20% over the same period, it becomes an expensive year, and the 10-point gap is the number worth investigating.",[35,5321,5322],{},"Benchmarking over several periods also turns performance into feedback. Persistent gaps point to where a strategy is losing ground, and persistent outperformance is at least evidence that the approach is doing something the market is not.",[39,5324,5326],{"id":5325},"how-do-you-choose-the-right-benchmark-for-your-portfolio","How do you choose the right benchmark for your portfolio?",[35,5328,5329],{},"Choose a benchmark with a similar risk and return profile to your portfolio, most simply by matching the asset classes you actually hold.",[35,5331,5332],{},"Matching matters because the comparison is meant to isolate the value you added by managing the capital yourself. Comparing a conservative bond-heavy portfolio with an aggressive equity index tells you about the risk difference, not about your decisions. Practical guidelines:",[44,5334,5335,5341,5347,5353],{},[47,5336,5337,5340],{},[287,5338,5339],{},"Match the asset class."," Equities to an equity index, bonds to a bond index, and a mixed portfolio to a blend of both in the same proportions.",[47,5342,5343,5346],{},[287,5344,5345],{},"Match the geography and market segment."," A portfolio of US large caps belongs against a US large-cap index, not a global one.",[47,5348,5349,5352],{},[287,5350,5351],{},"Match the style where it is pronounced."," A portfolio of technology growth companies is better judged against a growth index than a broad market one.",[47,5354,5355,5358],{},[287,5356,5357],{},"Fix the benchmark in advance."," Choosing a benchmark after the fact, from among the ones you happened to beat, defeats the purpose.",[35,5360,5361],{},"Asset classes can be narrowed as far as a specific industry within a single country if that is genuinely what the portfolio holds.",[39,5363,5365],{"id":5364},"what-are-common-portfolio-benchmarks","What are common portfolio benchmarks?",[35,5367,5368],{},"The most commonly used portfolio benchmarks are broad market indices such as the S&P 500, the Nasdaq Composite and the MSCI World Index, along with ETFs that track a specific market segment.",[80,5370,5371,5384],{},[83,5372,5373],{},[86,5374,5375,5378,5381],{},[89,5376,5377],{},"Benchmark",[89,5379,5380],{},"What it covers",[89,5382,5383],{},"Weighting",[96,5385,5386,5397,5407,5418,5429,5439,5449],{},[86,5387,5388,5391,5394],{},[101,5389,5390],{},"S&P 500",[101,5392,5393],{},"500 leading publicly traded companies in the US",[101,5395,5396],{},"Market capitalisation",[86,5398,5399,5402,5405],{},[101,5400,5401],{},"Nasdaq Composite",[101,5403,5404],{},"3,000+ common equities listed on the Nasdaq exchange, with a high concentration of technology companies",[101,5406,5396],{},[86,5408,5409,5412,5415],{},[101,5410,5411],{},"NYSE Composite",[101,5413,5414],{},"2,400+ common stocks listed on the New York Stock Exchange",[101,5416,5417],{},"Free-float adjusted market capitalisation",[86,5419,5420,5423,5426],{},[101,5421,5422],{},"Dow Jones Industrial Average (DJIA)",[101,5424,5425],{},"30 large, well-established companies listed on the NYSE and Nasdaq",[101,5427,5428],{},"Share price",[86,5430,5431,5434,5437],{},[101,5432,5433],{},"MSCI World Index",[101,5435,5436],{},"1,500+ large and mid cap companies across 23 developed countries",[101,5438,5417],{},[86,5440,5441,5444,5447],{},[101,5442,5443],{},"QQQ",[101,5445,5446],{},"ETF tracking the 100 largest non-financial companies listed on the Nasdaq, treated as a large cap growth proxy",[101,5448,5396],{},[86,5450,5451,5454,5457],{},[101,5452,5453],{},"EEM",[101,5455,5456],{},"ETF tracking MSCI Emerging Markets, covering large and mid cap companies across 25 emerging markets",[101,5458,5417],{},[35,5460,5461,5462,733],{},"Beyond these, many ETFs specialise in a single industry or market segment, and one of them may fit a concentrated portfolio better than a broad index. You can search for candidates on an ",[219,5463,5466],{"href":5464,"rel":5465},"https://etfdb.com/screener/",[240],"ETF screener",[39,5468,5470],{"id":5469},"how-do-you-benchmark-a-portfolios-performance","How do you benchmark a portfolio's performance?",[35,5472,5473],{},"Benchmark a portfolio by comparing it with its chosen reference index on three fronts over the same period: return, risk, and risk-adjusted return.",[10,5475,12,5476,12,5479,12,5482],{},[14,5477],{"srcSet":5478,"type":17},"/blog_images/how-to-benchmark-portfolio/benchmark-portfolio-with-portseido.avif",[14,5480],{"srcSet":5481,"type":21},"/blog_images/how-to-benchmark-portfolio/benchmark-portfolio-with-portseido.webp",[23,5483],{"alt":5484,"src":5485,"style":624,"width":625,"height":5486,"loading":670,"decoding":30},"benchmarking investment portfolio with Portseido","/blog_images/how-to-benchmark-portfolio/benchmark-portfolio-with-portseido.png",634,[140,5488,5490],{"id":5489},"compare-returns","Compare returns",[35,5492,5493],{},"Return is the most common basis for benchmarking, and the comparison is simply the portfolio's return minus the benchmark's return over an identical period.",[2246,5495,5497],{"className":2248,"code":5496,"language":2250,"meta":400,"style":400},"Excess Return = Portfolio Return - Benchmark Return\n",[2252,5498,5499],{"__ignoreMap":400},[2255,5500,5501],{"class":2257,"line":2258},[2255,5502,5496],{},[35,5504,5505,5506,5509,5510,5513],{},"A portfolio that returned 10% while its benchmark returned 20% has an excess return of -10 percentage points, which is a meaningful shortfall however good the 10% looked alone. Use the same return method on both sides. Because an index has no deposits or withdrawals, the fair comparison is ",[219,5507,5508],{"href":3914},"time-weighted return",", which strips cash flows out of the portfolio's figure too, and ",[219,5511,5512],{"href":1030},"the four ways to calculate portfolio return"," set out how each method handles them.",[10,5515,12,5516,12,5519,12,5522],{},[14,5517],{"srcSet":5518,"type":17},"/blog_images/how-to-benchmark-portfolio/portfolio-vs-sp500.avif",[14,5520],{"srcSet":5521,"type":21},"/blog_images/how-to-benchmark-portfolio/portfolio-vs-sp500.webp",[23,5523],{"alt":5524,"src":5525,"style":624,"width":625,"height":5526,"loading":670,"decoding":30},"Portfolio value vs S&P500","/blog_images/how-to-benchmark-portfolio/portfolio-vs-sp500.png",209,[140,5528,5530],{"id":5529},"compare-risk","Compare risk",[35,5532,5533],{},"Comparing risk against the benchmark shows whether an outperformance was earned or simply bought with extra risk, for example through leverage or concentration.",[35,5535,5536,5537,5539,5540,5543],{},"Beating a benchmark by 5 points while carrying twice its volatility is a different result from beating it by 5 points with the same volatility. There is nothing wrong with taking more risk deliberately, but the portfolio's owner should be able to see which of the two happened. The usual measures are ",[219,5538,4077],{"href":1218},", the standard deviation of returns, and ",[219,5541,5542],{"href":2971},"beta",", which measures how much the portfolio moves relative to the benchmark itself.",[140,5545,5547],{"id":5546},"compare-risk-adjusted-return","Compare risk-adjusted return",[35,5549,5550],{},"Risk-adjusted return expresses how much return a portfolio produced per unit of the risk it carried, folding return and risk into one figure that can be set directly against the benchmark's.",[35,5552,5553,5554,5557,5558,5562],{},"Since investors may knowingly accept more risk in pursuit of higher returns, judging a portfolio against a benchmark on return and risk as separate numbers can be inconclusive. Risk-adjusted measures resolve that by putting both on one scale. The common ones are the ",[219,5555,5556],{"href":1976},"Sharpe ratio",", which divides excess return by total volatility, and the ",[219,5559,5561],{"href":5560},"/blog/treynor-ratio/","Treynor ratio",", which divides it by beta. Compute the same ratio for the benchmark and compare the two directly.",[35,5564,5565],{},"Doing this by hand means maintaining index price history alongside your own transactions and revaluing both on the same dates. Portseido benchmarks a portfolio against indices and ETFs automatically, using the same time-weighted return it calculates from your transaction history, so the two sides of the comparison stay consistent.",[39,5567,5569],{"id":5568},"what-mistakes-should-you-avoid-when-benchmarking-a-portfolio","What mistakes should you avoid when benchmarking a portfolio?",[35,5571,5572],{},"The most common benchmarking mistake is comparing a portfolio against an index that does not resemble it, which produces a difference driven by risk rather than by decisions.",[44,5574,5575,5581,5587,5593,5599],{},[47,5576,5577,5580],{},[287,5578,5579],{},"Changing the benchmark after the fact."," Picking the index you beat turns the exercise into self-congratulation.",[47,5582,5583,5586],{},[287,5584,5585],{},"Comparing different periods."," Both figures must cover exactly the same start and end dates.",[47,5588,5589,5592],{},[287,5590,5591],{},"Ignoring dividends on one side."," A price-only index return compared against a portfolio return that includes dividends flatters the portfolio.",[47,5594,5595,5598],{},[287,5596,5597],{},"Judging on one short window."," A single quarter reports market conditions; several years report the strategy.",[47,5600,5601,5604],{},[287,5602,5603],{},"Comparing return without risk."," A portfolio that beat its index with far greater volatility has not necessarily done better.",[39,5606,320],{"id":319},[140,5608,5610],{"id":5609},"should-i-benchmark-against-a-price-index-or-a-total-return-index","Should I benchmark against a price index or a total return index?",[35,5612,5613],{},"Benchmark against a total return version of the index, which reinvests dividends, whenever your own return figure includes the dividends you received. Comparing a dividend-inclusive portfolio return against a price-only index return overstates your performance by roughly the index's dividend yield each year, which compounds into a large gap over a decade.",[140,5615,5617],{"id":5616},"can-i-use-more-than-one-benchmark","Can I use more than one benchmark?",[35,5619,5620],{},"Yes, and it is often clearer than forcing one. Many investors quote a broad market index for context plus a closer match for the portfolio's actual composition, such as a sector or regional ETF. What matters is choosing all of them in advance and reporting each consistently, rather than switching between them depending on which looks favourable.",[140,5622,5624],{"id":5623},"how-long-a-period-do-i-need-before-a-benchmark-comparison-is-meaningful","How long a period do I need before a benchmark comparison is meaningful?",[35,5626,5627],{},"Compare over at least three to five years, and preferably across both a rising and a falling market. Over a single quarter or year, the gap between a portfolio and its benchmark is dominated by luck and by short-term style rotation. Longer periods that include a downturn reveal whether outperformance survives the conditions that test it.",[140,5629,5631],{"id":5630},"what-benchmark-should-i-use-for-a-portfolio-spread-across-several-asset-classes","What benchmark should I use for a portfolio spread across several asset classes?",[35,5633,5634],{},"Use a blended benchmark that mirrors your target allocation, for example 60% of an equity index and 40% of a bond index for a 60/40 portfolio. Blending keeps the risk profiles comparable. Rebalance the benchmark weights on the same schedule you rebalance the portfolio, or the comparison will drift over time.",[39,5636,5638],{"id":5637},"how-to-benchmark-your-portfolio-in-portseido","How to benchmark your portfolio in Portseido",[35,5640,5641],{},"Portseido is a portfolio tracker that benchmarks your portfolio against indices and ETFs, so you can see your performance and the alternative on the same chart. It consolidates holdings across brokers and currencies, calculates time-weighted and money-weighted returns, tracks cost basis, dividends and yield on cost, and reports asset allocation and drawdown, which is the risk side of the comparison. Transactions import from brokers or from a CSV.",[35,5643,5644,5645],{},"It suits self-directed investors who want to know whether their selections are adding anything over a simple index. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,5646,363],{"href":361,"rel":5647},[240],[2524,5649,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":5651},[5652,5653,5654,5655,5656,5657,5662,5663,5669],{"id":41,"depth":404,"text":42},{"id":5302,"depth":404,"text":5303},{"id":5312,"depth":404,"text":5313},{"id":5325,"depth":404,"text":5326},{"id":5364,"depth":404,"text":5365},{"id":5469,"depth":404,"text":5470,"children":5658},[5659,5660,5661],{"id":5489,"depth":401,"text":5490},{"id":5529,"depth":401,"text":5530},{"id":5546,"depth":401,"text":5547},{"id":5568,"depth":404,"text":5569},{"id":319,"depth":404,"text":320,"children":5664},[5665,5666,5667,5668],{"id":5609,"depth":401,"text":5610},{"id":5616,"depth":401,"text":5617},{"id":5623,"depth":401,"text":5624},{"id":5630,"depth":401,"text":5631},{"id":5637,"depth":404,"text":5638},"A benchmark is a reference index or portfolio used to judge investment performance. How to choose one and compare return, risk and risk-adjusted return.",{},"/blog/how-to-benchmark-portfolio","2022-07-08",{"title":5275,"description":5670},"blog/how-to-benchmark-portfolio","xvxKp7YtWdCE65R-WwsFKGbdcXm-U_fo-mzPDF_mob0",{"id":5678,"title":5679,"body":5680,"description":6167,"extension":428,"meta":6168,"navigation":430,"path":6169,"publishedAt":6170,"seo":6171,"seo_description":434,"seo_title":434,"social_image":5693,"stem":6172,"updatedAt":436,"__hash__":6173},"blog/blog/how-to-calculate-cost-basis.md","How to keep track of and calculate cost basis?",{"type":7,"value":5681,"toc":6150},[5682,5696,5699,5701,5718,5722,5725,5728,5734,5738,5741,5760,5763,5778,5791,5810,5813,5817,5820,5823,5826,5830,5833,5846,5849,5880,5883,5887,5890,5903,5906,5946,5949,5953,5956,5959,6052,6055,6058,6067,6071,6074,6100,6102,6106,6109,6113,6116,6120,6123,6127,6130,6134,6137,6148],[10,5683,12,5684,12,5687,12,5690],{},[14,5685],{"srcSet":5686,"type":17},"/blog_images/how-to-calculate-cost-basis/track-cost-basis-chart.avif",[14,5688],{"srcSet":5689,"type":21},"/blog_images/how-to-calculate-cost-basis/track-cost-basis-chart.webp",[23,5691],{"alt":5692,"src":5693,"style":624,"width":625,"height":5694,"decoding":30,"fetchPriority":31,"className":5695},"Track cost basis","/blog_images/how-to-calculate-cost-basis/track-cost-basis-chart.png",391,[33],[35,5697,5698],{},"If you own stock, crypto or ETFs, average cost is one of the first numbers you look at. With a single purchase it is trivial. It gets complicated the moment there are several buys at different prices and then a sale, because you have to decide which shares you sold. This guide explains cost basis, the two popular methods for calculating it — FIFO and weighted average — and works the same example through both so they can be compared directly.",[39,5700,42],{"id":41},[44,5702,5703,5706,5709,5712,5715],{},[47,5704,5705],{},"Cost basis is the total amount an investor paid for an asset, including commissions and fees, and it is the figure a gain or loss is measured against.",[47,5707,5708],{},"Cost basis per share is calculated as a weighted average: the total amount paid across all purchases, divided by the total number of shares held.",[47,5710,5711],{},"When only part of a holding is sold, a method is needed to decide which shares were sold; the two most common are First In, First Out (FIFO) and the weighted average method.",[47,5713,5714],{},"FIFO assumes the earliest shares bought are the first sold, so the remaining average cost changes after a sale.",[47,5716,5717],{},"The weighted average method assumes shares are sold proportionally from every purchase, so the remaining average cost per share is unchanged by a sale.",[39,5719,5721],{"id":5720},"what-is-cost-basis","What is cost basis?",[35,5723,5724],{},"Cost basis is the total amount you paid to acquire an asset, including commissions, transaction fees and any other acquisition costs. It is the reference point every gain or loss is measured against: sale proceeds minus cost basis is your profit.",[35,5726,5727],{},"Cost basis is quoted two ways, and it is worth being clear which you mean. Total cost basis is the money you put into a position; cost basis per share, also called average cost, is that total divided by the number of shares you hold.",[35,5729,5730,5731,5733],{},"Cost basis is also the denominator behind several other portfolio figures. ",[219,5732,2812],{"href":221},", for example, divides the dividend you now receive by what you originally paid, so an incorrect cost basis quietly corrupts it.",[39,5735,5737],{"id":5736},"how-do-you-calculate-cost-basis","How do you calculate cost basis?",[35,5739,5740],{},"Cost basis per share is calculated as a weighted average of every purchase price, using the number of shares in each purchase as the weight. Total cost basis is simply everything you paid, including fees.",[2246,5742,5744],{"className":2248,"code":5743,"language":2250,"meta":400,"style":400},"Total Cost Basis = (Shares1 x Price1) + (Shares2 x Price2) + ... + Fees\n\nAverage Cost per Share = Total Cost Basis / Total Shares Held\n",[2252,5745,5746,5751,5755],{"__ignoreMap":400},[2255,5747,5748],{"class":2257,"line":2258},[2255,5749,5750],{},"Total Cost Basis = (Shares1 x Price1) + (Shares2 x Price2) + ... + Fees\n",[2255,5752,5753],{"class":2257,"line":404},[2255,5754,3035],{"emptyLinePlaceholder":430},[2255,5756,5757],{"class":2257,"line":401},[2255,5758,5759],{},"Average Cost per Share = Total Cost Basis / Total Shares Held\n",[35,5761,5762],{},"Imagine that you bought 10 shares of AAPL at $130, then the stock price dropped and you bought 30 shares more at $100. Calculating the average cost in this case is straightforward: take the weighted average of the prices, using the proportion of shares in each transaction as the weight.",[10,5764,12,5765,12,5768,12,5771],{},[14,5766],{"srcSet":5767,"type":17},"/blog_images/how-to-calculate-cost-basis/average-cost-formula.avif",[14,5769],{"srcSet":5770,"type":21},"/blog_images/how-to-calculate-cost-basis/average-cost-formula.webp",[23,5772],{"alt":5773,"src":5774,"style":5775,"width":5776,"height":5777,"loading":670,"decoding":30},"Average Cost formula","/blog_images/how-to-calculate-cost-basis/average-cost-formula.png","max-width:100%; width:615px; height:auto;aspect-ratio:'attr(width) / attr(height)'",615,71,[10,5779,12,5780,12,5783,12,5786],{},[14,5781],{"srcSet":5782,"type":17},"/blog_images/how-to-calculate-cost-basis/calculate-average-cost.avif",[14,5784],{"srcSet":5785,"type":21},"/blog_images/how-to-calculate-cost-basis/calculate-average-cost.webp",[23,5787],{"alt":5788,"src":5789,"style":5775,"width":5776,"height":5790,"loading":670,"decoding":30},"Calculate average cost","/blog_images/how-to-calculate-cost-basis/calculate-average-cost.png",75,[2246,5792,5794],{"className":2248,"code":5793,"language":2250,"meta":400,"style":400},"Total Cost Basis = (10 x $130) + (30 x $100) = $1,300 + $3,000 = $4,300\n\nAverage Cost per Share = $4,300 / 40 shares = $107.50\n",[2252,5795,5796,5801,5805],{"__ignoreMap":400},[2255,5797,5798],{"class":2257,"line":2258},[2255,5799,5800],{},"Total Cost Basis = (10 x $130) + (30 x $100) = $1,300 + $3,000 = $4,300\n",[2255,5802,5803],{"class":2257,"line":404},[2255,5804,3035],{"emptyLinePlaceholder":430},[2255,5806,5807],{"class":2257,"line":401},[2255,5808,5809],{},"Average Cost per Share = $4,300 / 40 shares = $107.50\n",[35,5811,5812],{},"Note that a simple average of the two prices, ($130 + $100) / 2 = $115, is wrong. It ignores the fact that three times as many shares were bought at $100, which is exactly what the weighting corrects for.",[39,5814,5816],{"id":5815},"why-does-the-cost-basis-method-matter-when-you-sell","Why does the cost basis method matter when you sell?",[35,5818,5819],{},"The cost basis method matters when you sell because it decides which of your shares left the portfolio, and that determines both the gain you realise now and the average cost of what remains.",[35,5821,5822],{},"Take a position built from two purchases: 10 shares of AAPL bought at $130 and 30 more bought at $100, 40 shares in total at an average cost of $107.50. The price then rises and you sell 5 shares at $150. With 35 shares left, what is your average cost now?",[35,5824,5825],{},"There is no way to answer without an assumption about which 5 of the 40 shares were sold — the ones bought at $130, the ones bought at $100, or a mix. FIFO and the weighted average method both use the same average cost arithmetic and differ only in that assumption. Whichever you pick, the total of what you paid is still $4,300; the method only decides how much of that cost is used up by today's sale and how much stays with the shares you still hold.",[39,5827,5829],{"id":5828},"how-do-you-calculate-cost-basis-using-fifo","How do you calculate cost basis using FIFO?",[35,5831,5832],{},"The First In, First Out (FIFO) method assumes the first shares you bought are the first shares sold. The earliest purchase is consumed first, and the remaining average cost is recalculated from what is left.",[10,5834,12,5835,12,5838,12,5841],{},[14,5836],{"srcSet":5837,"type":17},"/blog_images/how-to-calculate-cost-basis/fifo-average-cost.avif",[14,5839],{"srcSet":5840,"type":21},"/blog_images/how-to-calculate-cost-basis/fifo-average-cost.webp",[23,5842],{"alt":5843,"src":5844,"style":5775,"width":5776,"height":5845,"loading":670,"decoding":30},"Average cost for FIFO method","/blog_images/how-to-calculate-cost-basis/fifo-average-cost.png",73,[35,5847,5848],{},"Working the example — 10 shares bought at $130, then 30 shares bought at $100, then 5 shares sold at $150 — FIFO takes all 5 sold shares from the first purchase, the one at $130. The first lot is left with 5 shares and the second lot still holds its full 30 shares:",[2246,5850,5852],{"className":2248,"code":5851,"language":2250,"meta":400,"style":400},"Cost basis of the 5 shares sold = 5 x $130 = $650\nRealised gain = (5 x $150) - $650 = $750 - $650 = $100\n\nRemaining 35 shares = (5 x $130) + (30 x $100) = $650 + $3,000 = $3,650\nRemaining average cost = $3,650 / 35 = $104.29\n",[2252,5853,5854,5859,5864,5868,5874],{"__ignoreMap":400},[2255,5855,5856],{"class":2257,"line":2258},[2255,5857,5858],{},"Cost basis of the 5 shares sold = 5 x $130 = $650\n",[2255,5860,5861],{"class":2257,"line":404},[2255,5862,5863],{},"Realised gain = (5 x $150) - $650 = $750 - $650 = $100\n",[2255,5865,5866],{"class":2257,"line":401},[2255,5867,3035],{"emptyLinePlaceholder":430},[2255,5869,5871],{"class":2257,"line":5870},4,[2255,5872,5873],{},"Remaining 35 shares = (5 x $130) + (30 x $100) = $650 + $3,000 = $3,650\n",[2255,5875,5877],{"class":2257,"line":5876},5,[2255,5878,5879],{},"Remaining average cost = $3,650 / 35 = $104.29\n",[35,5881,5882],{},"FIFO pulled the average cost down from $107.50 to $104.29, because the shares removed were the expensive ones. In a rising market FIFO generally sells the oldest and cheapest shares first, producing a larger realised gain; here the oldest shares happened to be the dearest, so the realised gain was small.",[39,5884,5886],{"id":5885},"how-do-you-calculate-cost-basis-using-the-weighted-average-method","How do you calculate cost basis using the weighted average method?",[35,5888,5889],{},"The weighted average method assumes shares sold come proportionally from every purchase, which leaves the average cost per share unchanged by a sale.",[10,5891,12,5892,12,5895,12,5898],{},[14,5893],{"srcSet":5894,"type":17},"/blog_images/how-to-calculate-cost-basis/weighted-average-cost.avif",[14,5896],{"srcSet":5897,"type":21},"/blog_images/how-to-calculate-cost-basis/weighted-average-cost.webp",[23,5899],{"alt":5900,"src":5901,"style":5775,"width":5776,"height":5902,"loading":670,"decoding":30},"Average cost for Weighted Average method","/blog_images/how-to-calculate-cost-basis/weighted-average-cost.png",80,[35,5904,5905],{},"Working the same example — 10 shares bought at $130, then 30 shares bought at $100, then 5 shares sold at $150 — the first purchase is 10 of the 40 shares, or 25%, and the second is 30 of 40, or 75%. Selling 5 shares therefore removes 1.25 shares from the $130 lot and 3.75 shares from the $100 lot:",[2246,5907,5909],{"className":2248,"code":5908,"language":2250,"meta":400,"style":400},"Average cost per share before the sale = $4,300 / 40 = $107.50\n\nCost basis of the 5 shares sold = 5 x $107.50 = $537.50\nRealised gain = (5 x $150) - $537.50 = $750 - $537.50 = $212.50\n\nRemaining 35 shares = $4,300 - $537.50 = $3,762.50\nRemaining average cost = $3,762.50 / 35 = $107.50\n",[2252,5910,5911,5916,5920,5925,5930,5934,5940],{"__ignoreMap":400},[2255,5912,5913],{"class":2257,"line":2258},[2255,5914,5915],{},"Average cost per share before the sale = $4,300 / 40 = $107.50\n",[2255,5917,5918],{"class":2257,"line":404},[2255,5919,3035],{"emptyLinePlaceholder":430},[2255,5921,5922],{"class":2257,"line":401},[2255,5923,5924],{},"Cost basis of the 5 shares sold = 5 x $107.50 = $537.50\n",[2255,5926,5927],{"class":2257,"line":5870},[2255,5928,5929],{},"Realised gain = (5 x $150) - $537.50 = $750 - $537.50 = $212.50\n",[2255,5931,5932],{"class":2257,"line":5876},[2255,5933,3035],{"emptyLinePlaceholder":430},[2255,5935,5937],{"class":2257,"line":5936},6,[2255,5938,5939],{},"Remaining 35 shares = $4,300 - $537.50 = $3,762.50\n",[2255,5941,5943],{"class":2257,"line":5942},7,[2255,5944,5945],{},"Remaining average cost = $3,762.50 / 35 = $107.50\n",[35,5947,5948],{},"Because both lots shrink by the same proportion, their weights in the position are identical before and after the sale. That is why the average cost stays at $107.50: under the weighted average method, a sale never moves your average cost per share. Only a new purchase does.",[39,5950,5952],{"id":5951},"fifo-vs-weighted-average-how-do-they-compare","FIFO vs weighted average: how do they compare?",[35,5954,5955],{},"FIFO and the weighted average method produce different realised gains and different remaining average costs from identical transactions, but the total cost basis they account for is the same.",[35,5957,5958],{},"Both columns below describe the same position: 10 shares of AAPL bought at $130, then 30 shares bought at $100, then 5 shares sold at $150.",[80,5960,5961,5973],{},[83,5962,5963],{},[86,5964,5965,5967,5970],{},[89,5966],{},[89,5968,5969],{},"FIFO",[89,5971,5972],{},"Weighted average",[96,5974,5975,5986,5997,6008,6019,6030,6041],{},[86,5976,5977,5980,5983],{},[101,5978,5979],{},"Which shares are assumed sold",[101,5981,5982],{},"The 5 earliest, all from the $130 lot",[101,5984,5985],{},"1.25 from the $130 lot, 3.75 from the $100 lot",[86,5987,5988,5991,5994],{},[101,5989,5990],{},"Cost basis of the 5 shares sold",[101,5992,5993],{},"$650",[101,5995,5996],{},"$537.50",[86,5998,5999,6002,6005],{},[101,6000,6001],{},"Realised gain on the sale",[101,6003,6004],{},"$100",[101,6006,6007],{},"$212.50",[86,6009,6010,6013,6016],{},[101,6011,6012],{},"Remaining 35 shares, total cost basis",[101,6014,6015],{},"$3,650",[101,6017,6018],{},"$3,762.50",[86,6020,6021,6024,6027],{},[101,6022,6023],{},"Remaining average cost per share",[101,6025,6026],{},"$104.29",[101,6028,6029],{},"$107.50",[86,6031,6032,6035,6038],{},[101,6033,6034],{},"Effect of a sale on average cost",[101,6036,6037],{},"Changes it",[101,6039,6040],{},"Leaves it unchanged",[86,6042,6043,6046,6049],{},[101,6044,6045],{},"Record-keeping needed",[101,6047,6048],{},"Every purchase lot, with dates",[101,6050,6051],{},"One running total",[35,6053,6054],{},"The two columns differ by $112.50 of realised gain, and by exactly the same $112.50 in remaining cost basis. Nothing is gained or lost overall — the cost is either used now or carried forward.",[35,6056,6057],{},"Which to use is often not your decision. Several jurisdictions mandate a method rather than offering a choice; the UK, for example, pools identical shares at an average cost. Where you do have a choice, weighted average is simpler to maintain and FIFO gives a more precise record of what each lot cost. Confirm the rules that apply to you before choosing, because tax treatment varies by country and by account type.",[35,6059,6060,6061,6063,6064,6066],{},"The choice also compounds with how often you trade. Every sale locks in a gain, so a portfolio with high ",[219,6062,1692],{"href":1691}," realises far more of its gains along the way, and rebalancing back to a target ",[219,6065,248],{"href":247}," is one of the most common reasons investors sell at all.",[39,6068,6070],{"id":6069},"what-other-cost-basis-methods-exist","What other cost basis methods exist?",[35,6072,6073],{},"Besides FIFO and weighted average, several other cost basis methods exist, and they differ only in which shares they assume were sold. Portseido does not support these methods, but they are worth knowing:",[44,6075,6076,6082,6088,6094],{},[47,6077,6078,6081],{},[287,6079,6080],{},"Last In, First Out (LIFO)."," The opposite of FIFO: the most recently bought shares are the first sold. In the running example — 10 shares at $130, then 30 at $100, then 5 sold at $150 — LIFO takes all 5 from the $100 lot, giving a cost basis of $500, a realised gain of $250, and a remaining average cost of $3,800 / 35 = $108.57.",[47,6083,6084,6087],{},[287,6085,6086],{},"High-cost method."," The highest-priced shares are sold first, which minimises the realised gain on each sale.",[47,6089,6090,6093],{},[287,6091,6092],{},"Low-cost method."," The lowest-priced shares are sold first, which maximises the realised gain on each sale.",[47,6095,6096,6099],{},[287,6097,6098],{},"Specific identification."," You nominate exactly which lot is being sold at the time of the trade, which gives the most control and requires the most record-keeping.",[39,6101,320],{"id":319},[140,6103,6105],{"id":6104},"do-dividends-and-fees-change-my-cost-basis","Do dividends and fees change my cost basis?",[35,6107,6108],{},"Commissions and transaction fees are added to cost basis, because they are part of what you paid to acquire the asset. Ordinary cash dividends do not change cost basis — they are income. Reinvested dividends do: each reinvestment is a new purchase at that day's price, and it enters the weighted average like any other buy.",[140,6110,6112],{"id":6111},"does-a-stock-split-change-my-cost-basis","Does a stock split change my cost basis?",[35,6114,6115],{},"A stock split changes your cost basis per share but not your total cost basis. In a 2-for-1 split, your share count doubles and your average cost per share halves, leaving the total unchanged. For example, 40 shares at an average cost of $107.50, total $4,300, becomes 80 shares at $53.75, still $4,300 in total.",[140,6117,6119],{"id":6118},"how-do-i-calculate-cost-basis-across-two-brokers-holding-the-same-stock","How do I calculate cost basis across two brokers holding the same stock?",[35,6121,6122],{},"Cost basis is tracked per account, so two brokers holding the same stock each report their own average cost, and neither shows your true overall figure. To get it, combine every purchase from both accounts into one weighted average: add all the amounts paid, add all the shares, and divide. Currency conversions must be applied at the rate on each transaction date.",[140,6124,6126],{"id":6125},"what-is-the-difference-between-cost-basis-and-market-value","What is the difference between cost basis and market value?",[35,6128,6129],{},"Cost basis is what you paid for a holding; market value is what it is worth today. The difference between the two is your unrealised gain or loss. Cost basis is fixed by your transactions and only changes when you buy, sell or receive a corporate action, while market value changes every trading day.",[39,6131,6133],{"id":6132},"how-to-track-cost-basis-in-portseido","How to track cost basis in Portseido",[35,6135,6136],{},"Portseido tracks cost basis for every holding automatically from your transaction history, so you do not have to rebuild a weighted average each time you buy, sell or reinvest a dividend. It consolidates holdings across multiple brokers and multiple currencies, which is where manual cost basis tracking usually breaks down, and it uses the same figures to report dividends, yield on cost, asset allocation, drawdown, and time-weighted and money-weighted returns. Transactions can be imported from brokers or from a CSV.",[35,6138,6139,6140,6144,6145],{},"Portseido supports the FIFO and weighted average methods, not LIFO, high-cost or low-cost, and it tracks and reports on your portfolio rather than giving buy or sell recommendations or tax advice. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. Existing users can change the cost basis method in the ",[219,6141,6143],{"href":6142},"/menu?changeCalculationMethodDialog=true","calculation method settings",". ",[219,6146,363],{"href":361,"rel":6147},[240],[2524,6149,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":6151},[6152,6153,6154,6155,6156,6157,6158,6159,6160,6166],{"id":41,"depth":404,"text":42},{"id":5720,"depth":404,"text":5721},{"id":5736,"depth":404,"text":5737},{"id":5815,"depth":404,"text":5816},{"id":5828,"depth":404,"text":5829},{"id":5885,"depth":404,"text":5886},{"id":5951,"depth":404,"text":5952},{"id":6069,"depth":404,"text":6070},{"id":319,"depth":404,"text":320,"children":6161},[6162,6163,6164,6165],{"id":6104,"depth":401,"text":6105},{"id":6111,"depth":401,"text":6112},{"id":6118,"depth":401,"text":6119},{"id":6125,"depth":401,"text":6126},{"id":6132,"depth":404,"text":6133},"Cost basis is what you paid for an asset, including fees. Calculate it as a weighted average of your purchases, then apply FIFO or weighted average on a sale.",{},"/blog/how-to-calculate-cost-basis","2022-07-09",{"title":5679,"description":6167},"blog/how-to-calculate-cost-basis","jJju9gUEA76B3Tnxgh8_-wgmWUB05UDGCKZ4gJO3oSs",{"id":6175,"title":6176,"body":6177,"description":6726,"extension":428,"meta":6727,"navigation":430,"path":6728,"publishedAt":6729,"seo":6730,"seo_description":434,"seo_title":434,"social_image":6190,"stem":6731,"updatedAt":436,"__hash__":6732},"blog/blog/how-to-calculate-portfolio-return.md","How to Calculate Portfolio Return?",{"type":7,"value":6178,"toc":6698},[6179,6192,6195,6197,6214,6218,6221,6224,6231,6235,6238,6297,6303,6307,6310,6319,6326,6330,6345,6348,6351,6355,6358,6369,6384,6388,6391,6400,6406,6409,6413,6429,6433,6438,6454,6459,6474,6479,6495,6499,6505,6524,6527,6531,6545,6549,6560,6575,6582,6586,6592,6596,6608,6611,6615,6618,6626,6640,6643,6650,6652,6656,6659,6663,6666,6670,6673,6677,6680,6684,6691,6696],[10,6180,12,6181,12,6184,12,6187],{},[14,6182],{"srcSet":6183,"type":17},"/blog_images/how-to-calculate-portfolio-return/how-to-calculate-portfolio-return-cover.avif",[14,6185],{"srcSet":6186,"type":21},"/blog_images/how-to-calculate-portfolio-return/how-to-calculate-portfolio-return-cover.webp",[23,6188],{"alt":6189,"src":6190,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":6191},"How to calculate portfolio return","/blog_images/how-to-calculate-portfolio-return/how-to-calculate-portfolio-return-cover.png",[33],[35,6193,6194],{},"Portfolio return measures how much an investment portfolio gained or lost over a period, expressed as a percentage of the amount invested. Four methods are in common use, and they differ in the data they need and the question they answer. Each is covered below with its formula, an example and the Excel steps.",[39,6196,42],{"id":41},[44,6198,6199,6202,6205,6208,6211],{},[47,6200,6201],{},"Portfolio return is the gain or loss of an investment portfolio over a period, expressed as a percentage of the amount invested at the start.",[47,6203,6204],{},"Holding period return is the simplest method: all gains over the period, including income and net of costs, divided by the initial portfolio value.",[47,6206,6207],{},"Weighted average portfolio return multiplies each holding's starting weight by its return and sums the results, showing where the portfolio's return came from.",[47,6209,6210],{},"Time-weighted return removes the effect of deposits and withdrawals, so it measures how the investments performed rather than when money was added.",[47,6212,6213],{},"Money-weighted return, also called the internal rate of return, reflects the size and timing of every cash flow, so it measures what the investor personally earned.",[39,6215,6217],{"id":6216},"what-is-portfolio-return","What is portfolio return?",[35,6219,6220],{},"Portfolio return measures the gain or loss of an investment portfolio over a specified period, relative to the value invested at the start of that period. It is quoted as a percentage so portfolios of different sizes can be compared on the same basis.",[35,6222,6223],{},"Portfolio return is not the average of the returns of the holdings inside it. A holding worth 40% of a portfolio moves the result twice as much as one worth 20%, so weights matter as much as individual returns.",[35,6225,6226,6227,6230],{},"A portfolio return figure is only useful next to a reference point, so it is worth ",[219,6228,6229],{"href":2137},"comparing your performance against a benchmark"," such as an index or ETF.",[39,6232,6234],{"id":6233},"how-do-you-calculate-portfolio-return","How do you calculate portfolio return?",[35,6236,6237],{},"Portfolio return is calculated using one of four methods: holding period return, weighted average portfolio return, time-weighted return, or money-weighted return. The right one depends on the data you have and on whether you want to strip out the effect of deposits and withdrawals.",[80,6239,6240,6253],{},[83,6241,6242],{},[86,6243,6244,6247,6250],{},[89,6245,6246],{},"Method",[89,6248,6249],{},"Data you need",[89,6251,6252],{},"Best for",[96,6254,6255,6266,6277,6287],{},[86,6256,6257,6260,6263],{},[101,6258,6259],{},"Holding period return",[101,6261,6262],{},"Start value, end value, income, costs",[101,6264,6265],{},"A single position, or a portfolio with no deposits or withdrawals",[86,6267,6268,6271,6274],{},[101,6269,6270],{},"Weighted average portfolio return",[101,6272,6273],{},"Each holding's starting weight and its return",[101,6275,6276],{},"Seeing which holdings drove the portfolio's return",[86,6278,6279,6281,6284],{},[101,6280,3915],{},[101,6282,6283],{},"Portfolio value at every cash flow date",[101,6285,6286],{},"Judging investment performance independently of contribution timing",[86,6288,6289,6291,6294],{},[101,6290,3940],{},[101,6292,6293],{},"Every cash flow with its date, plus the ending value",[101,6295,6296],{},"Measuring the return you personally earned, timing decisions included",[35,6298,6299,6300,6302],{},"The four methods give four different numbers for the same portfolio, and none of them is wrong. If you are unsure which to quote, the comparison of ",[219,6301,3960],{"href":3959}," sets out when each is the honest answer.",[39,6304,6306],{"id":6305},"how-do-you-calculate-holding-period-return","How do you calculate holding period return?",[35,6308,6309],{},"Holding period return (HPR) is calculated by taking all the gains made over the period, including income and net of related costs, and dividing them by the value of the portfolio at the start of the period.",[2246,6311,6313],{"className":2248,"code":6312,"language":2250,"meta":400,"style":400},"Holding Period Return = (End Value - Initial Value + Income - Costs) / Initial Value\n",[2252,6314,6315],{"__ignoreMap":400},[2255,6316,6317],{"class":2257,"line":2258},[2255,6318,6312],{},[35,6320,6321,6322,733],{},"Gains include price appreciation plus income such as dividends, net of costs such as commissions. The initial value is what the position was worth at the start, which for a position bought during the period is ",[219,6323,6325],{"href":6324},"/blog/how-to-calculate-cost-basis/","its cost basis",[140,6327,6329],{"id":6328},"holding-period-return-formula","Holding period return formula",[10,6331,12,6332,12,6335,12,6338],{},[14,6333],{"srcSet":6334,"type":17},"/blog_images/how-to-calculate-portfolio-return/holding-period-return-formula.avif",[14,6336],{"srcSet":6337,"type":21},"/blog_images/how-to-calculate-portfolio-return/holding-period-return-formula.webp",[23,6339],{"alt":6340,"src":6341,"style":1354,"width":6342,"height":6343,"decoding":30,"fetchPriority":31,"className":6344},"Holding Period Return Formula","/blog_images/how-to-calculate-portfolio-return/holding-period-return-formula.png",756,85,[33],[35,6346,6347],{},"For example, if you bought AAPL at $175, received a $0.24 dividend and AAPL was valued at $200 at the end of the period, the holding period return would be (200 - 175 + 0.24) / 175 = 14.42%.",[35,6349,6350],{},"Holding period return is easy to compute but ignores when money went in, so a large mid-period deposit mixes the investment's performance with the timing of that deposit.",[140,6352,6354],{"id":6353},"how-to-calculate-holding-period-return-in-excel","How to calculate holding period return in Excel",[35,6356,6357],{},"To calculate holding period return in Excel:",[178,6359,6360,6363],{},[47,6361,6362],{},"Input End Value, Initial Value, Income and Cost into your Excel file",[47,6364,6365,6366],{},"Calculate the HPR as ",[2252,6367,6368],{},"= (End Value - Initial Value + Income - Cost) / Initial Value",[10,6370,12,6371,12,6374,12,6377],{},[14,6372],{"srcSet":6373,"type":17},"/blog_images/how-to-calculate-portfolio-return/calculate-holding-period-return-excel.avif",[14,6375],{"srcSet":6376,"type":21},"/blog_images/how-to-calculate-portfolio-return/calculate-holding-period-return-excel.webp",[23,6378],{"alt":6354,"src":6379,"style":6380,"width":6381,"height":6382,"decoding":30,"fetchPriority":31,"className":6383},"/blog_images/how-to-calculate-portfolio-return/calculate-holding-period-return-excel.png","max-width:100%;width:400px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",408,244,[33],[39,6385,6387],{"id":6386},"how-do-you-calculate-weighted-average-portfolio-return","How do you calculate weighted average portfolio return?",[35,6389,6390],{},"Weighted average portfolio return is calculated by multiplying each holding's share of the portfolio at the start of the period by that holding's return over the period, then adding the results together.",[2246,6392,6394],{"className":2248,"code":6393,"language":2250,"meta":400,"style":400},"Weighted Average Portfolio Return = (Weight1 x Return1) + (Weight2 x Return2) + ... + (WeightN x ReturnN)\n",[2252,6395,6396],{"__ignoreMap":400},[2255,6397,6398],{"class":2257,"line":2258},[2255,6399,6393],{},[35,6401,6402,6403,6405],{},"You need the ",[219,6404,4191],{"href":1762}," of each investment at the beginning of the period, meaning its value as a share of the whole portfolio, and each investment's return.",[35,6407,6408],{},"For example, a portfolio that started the year 50% in a stock that returned 12%, 30% in a stock that returned 8%, and 20% in a bond fund that returned 2% has a weighted average portfolio return of (0.5 x 12%) + (0.3 x 8%) + (0.2 x 2%) = 8.8%.",[140,6410,6412],{"id":6411},"weighted-average-portfolio-return-formula","Weighted average portfolio return formula",[10,6414,12,6415,12,6418,12,6421],{},[14,6416],{"srcSet":6417,"type":17},"/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-formula.avif",[14,6419],{"srcSet":6420,"type":21},"/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-formula.webp",[23,6422],{"alt":6423,"src":6424,"style":6425,"width":6426,"height":6427,"decoding":30,"fetchPriority":31,"className":6428},"Weighted Average Portfolio Return Formula","/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-formula.png","max-width:100%;width:350px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",413,265,[33],[140,6430,6432],{"id":6431},"how-to-calculate-weighted-average-portfolio-return-in-excel","How to calculate weighted average portfolio return in Excel",[178,6434,6435],{},[47,6436,6437],{},"Create the table with asset name, initial portfolio weight and return for each of them",[10,6439,12,6440,12,6443,12,6446],{},[14,6441],{"srcSet":6442,"type":17},"/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-excel-step-1.avif",[14,6444],{"srcSet":6445,"type":21},"/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-excel-step-1.webp",[23,6447],{"alt":6448,"src":6449,"style":6450,"width":6451,"height":6452,"decoding":30,"fetchPriority":31,"className":6453},"Calculate weighted portfolio return step 1, inputting portfolio weight and asset return","/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-excel-step-1.png","max-width:100%;width:500px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",513,192,[33],[178,6455,6456],{"start":404},[47,6457,6458],{},"Multiply the weight and return of each asset to get the return impact on the portfolio",[10,6460,12,6461,12,6464,12,6467],{},[14,6462],{"srcSet":6463,"type":17},"/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-excel-step-2.avif",[14,6465],{"srcSet":6466,"type":21},"/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-excel-step-2.webp",[23,6468],{"alt":6469,"src":6470,"style":1354,"width":6471,"height":6472,"decoding":30,"fetchPriority":31,"className":6473},"Calculate weighted portfolio return step 2, multiplying portfolio weight and asset return","/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-excel-step-2.png",689,232,[33],[178,6475,6476],{"start":401},[47,6477,6478],{},"Sum the values to get weighted average portfolio return",[10,6480,12,6481,12,6484,12,6487],{},[14,6482],{"srcSet":6483,"type":17},"/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-excel-step-3.avif",[14,6485],{"srcSet":6486,"type":21},"/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-excel-step-3.webp",[23,6488],{"alt":6489,"src":6490,"style":6491,"width":6492,"height":6493,"decoding":30,"fetchPriority":31,"className":6494},"Calculate weighted portfolio return step 3, summing up all the values","/blog_images/how-to-calculate-portfolio-return/weighted-average-portfolio-return-excel-step-3.png","max-width:100%;width:800px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",890,219,[33],[39,6496,6498],{"id":6497},"how-do-you-calculate-time-weighted-return","How do you calculate time-weighted return?",[35,6500,6501,6504],{},[219,6502,6503],{"href":3914},"Time-weighted return (TWR)"," is calculated by splitting the period into sub-periods at every deposit or withdrawal, calculating the return of each sub-period separately, then chaining those returns together so each period counts equally regardless of how much money was invested at the time.",[2246,6506,6508],{"className":2248,"code":6507,"language":2250,"meta":400,"style":400},"Sub-period Return = End Value / (Beginning Value + Cash Flow) - 1\n\nTWR = [(1 + Return1) x (1 + Return2) x ... x (1 + ReturnN)] - 1\n",[2252,6509,6510,6515,6519],{"__ignoreMap":400},[2255,6511,6512],{"class":2257,"line":2258},[2255,6513,6514],{},"Sub-period Return = End Value / (Beginning Value + Cash Flow) - 1\n",[2255,6516,6517],{"class":2257,"line":404},[2255,6518,3035],{"emptyLinePlaceholder":430},[2255,6520,6521],{"class":2257,"line":401},[2255,6522,6523],{},"TWR = [(1 + Return1) x (1 + Return2) x ... x (1 + ReturnN)] - 1\n",[35,6525,6526],{},"Because each sub-period counts equally, time-weighted return is unaffected by how much money was in the portfolio when it performed well or badly. That is why it is the standard for comparing fund managers, who do not control when clients deposit.",[140,6528,6530],{"id":6529},"time-weighted-return-formula","Time-weighted return formula",[10,6532,12,6533,12,6536,12,6539],{},[14,6534],{"srcSet":6535,"type":17},"/blog_images/time-weighted-return/time-weighted-return-formula.avif",[14,6537],{"srcSet":6538,"type":21},"/blog_images/time-weighted-return/time-weighted-return-formula.webp",[23,6540],{"alt":6530,"src":6541,"style":6542,"width":6543,"height":6544,"decoding":30,"fetchPriority":31},"/blog_images/time-weighted-return/time-weighted-return-formula.png","max-width:100%;width:728px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",728,208,[140,6546,6548],{"id":6547},"how-to-calculate-time-weighted-return-in-excel","How to calculate time-weighted return in Excel",[178,6550,6551,6554,6557],{},[47,6552,6553],{},"Input the portfolio value at the start of each period and record any cash flows (inflows or outflows) during that period.",[47,6555,6556],{},"Calculate the return for each sub-period as end value divided by beginning value plus cash flow, minus 1.",[47,6558,6559],{},"Add one to each sub-period return, multiply them all together, then subtract 1 to obtain the TWR.",[10,6561,12,6562,12,6565,12,6568],{},[14,6563],{"srcSet":6564,"type":17},"/blog_images/time-weighted-return/time-weighted-return-in-excel.avif",[14,6566],{"srcSet":6567,"type":21},"/blog_images/time-weighted-return/time-weighted-return-in-excel.webp",[23,6569],{"alt":6570,"src":6571,"style":6572,"width":6573,"height":6574,"decoding":30,"fetchPriority":31},"Calculate Time-weighted return in Excel","/blog_images/time-weighted-return/time-weighted-return-in-excel.png","max-width:100%;width:728px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto; margin-top: 15px;",852,263,[35,6576,6577,6578,733],{},"Alternatively, you can try calculating time-weighted return using our ",[219,6579,6581],{"href":6580},"/tools/time-weighted-return-calculator/","free TWR calculator",[39,6583,6585],{"id":6584},"how-do-you-calculate-money-weighted-return","How do you calculate money-weighted return?",[35,6587,6588,6591],{},[219,6589,6590],{"href":3939},"Money-weighted return (MWR)",", also known as the internal rate of return (IRR) or dollar-weighted return, is the single rate of return that makes the present value of every cash flow into and out of the portfolio, plus the ending portfolio value, equal zero.",[140,6593,6595],{"id":6594},"money-weighted-return-formula","Money-weighted return formula",[10,6597,12,6598,12,6601,12,6604],{},[14,6599],{"srcSet":6600,"type":17},"/blog_images/money-weighted-return/money-weighted-return-formula.avif",[14,6602],{"srcSet":6603,"type":21},"/blog_images/money-weighted-return/money-weighted-return-formula.webp",[23,6605],{"alt":6595,"src":6606,"style":4549,"width":28,"height":6607,"decoding":30,"fetchPriority":31},"/blog_images/money-weighted-return/money-weighted-return-formula.png",177,[35,6609,6610],{},"Money-weighted return counts the size and timing of cash flows, so a deposit made before a rally raises it and one made before a fall lowers it. It answers \"what did I actually earn\", while time-weighted return answers \"how did the investments perform\". Solving it by hand is impractical, so it is normally done in a spreadsheet.",[140,6612,6614],{"id":6613},"how-to-calculate-money-weighted-return-in-excel","How to calculate money-weighted return in Excel",[35,6616,6617],{},"To calculate MWR in Excel or Google Sheets, use the XIRR function. Input the initial portfolio value and every cash flow with its date and size, and the function returns the rate of return that solves the equation. Mind the signs:",[44,6619,6620,6623],{},[47,6621,6622],{},"Enter the initial portfolio value and every later contribution as a negative number, since that is money leaving your pocket.",[47,6624,6625],{},"Enter dividends, withdrawals, sale proceeds and the final portfolio value as positive numbers.",[10,6627,12,6628,12,6631,12,6634],{},[14,6629],{"srcSet":6630,"type":17},"/blog_images/money-weighted-return/money-weighted-return-calculation.avif",[14,6632],{"srcSet":6633,"type":21},"/blog_images/money-weighted-return/money-weighted-return-calculation.webp",[23,6635],{"alt":6636,"src":6637,"style":6638,"width":28,"height":6639,"decoding":30,"fetchPriority":31},"Money-weighted return calculation","/blog_images/money-weighted-return/money-weighted-return-calculation.png","max-width:100%;width:700px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto; margin-bottom: 10px;",242,[35,6641,6642],{},"Redoing an XIRR every time you deposit, receive a dividend or open an account at another broker is the part most investors abandon. Portseido calculates money-weighted and time-weighted returns from your transaction history automatically, across brokers and currencies, so the figure stays current without spreadsheet maintenance.",[35,6644,6645,6646,733],{},"Alternatively, you can try our ",[219,6647,6649],{"href":6648},"/tools/money-weighted-return-calculator/","free MWR calculator",[39,6651,320],{"id":319},[140,6653,6655],{"id":6654},"do-dividends-count-towards-portfolio-return","Do dividends count towards portfolio return?",[35,6657,6658],{},"Yes. Dividends are part of a portfolio's total return and should be added to the gains in whichever method you use. Excluding them understates the performance of income-paying holdings, sometimes substantially. In a holding period return calculation, dividends belong in the income term of the numerator, alongside any interest received.",[140,6660,6662],{"id":6661},"should-portfolio-return-include-fees-and-taxes","Should portfolio return include fees and taxes?",[35,6664,6665],{},"Include the costs you actually paid, such as brokerage commissions and platform fees, by netting them off the gains. Portfolio return calculated this way is called a net return and reflects what you kept. Taxes are usually excluded because they depend on personal circumstances, but say which basis you used when comparing against a benchmark.",[140,6667,6669],{"id":6668},"how-do-you-turn-a-portfolio-return-into-an-annual-figure","How do you turn a portfolio return into an annual figure?",[35,6671,6672],{},"Convert a multi-year portfolio return into an annualised figure with ((1 + Total Return) ^ (1 / Number of Years)) - 1. A portfolio that gained 40% over three years annualises to roughly 11.9% a year. Comparing a multi-year return against a one-year benchmark without annualising is a common reporting error.",[140,6674,6676],{"id":6675},"why-do-two-calculators-give-different-portfolio-returns-for-the-same-account","Why do two calculators give different portfolio returns for the same account?",[35,6678,6679],{},"Different methods answer different questions, so they legitimately disagree. Time-weighted return ignores the size and timing of deposits, money-weighted return builds them in, and holding period return ignores intra-period cash flows entirely. Before comparing two figures, check that both use the same method, period and treatment of dividends.",[39,6681,6683],{"id":6682},"how-to-track-portfolio-return-in-portseido","How to track portfolio return in Portseido",[35,6685,6686,6687,733],{},"Portseido calculates portfolio return from your transaction history, so you do not have to rebuild a spreadsheet each time you trade. It consolidates holdings across brokers and currencies, reports simple return, time-weighted return and money-weighted return side by side, tracks cost basis, dividends and yield on cost, and benchmarks the portfolio against indices and ETFs. The same data feeds ",[219,6688,6690],{"href":6689},"/track-portfolio-performance/","monthly and dividend performance reports",[35,6692,1306,6693],{},[219,6694,363],{"href":361,"rel":6695},[240],[2524,6697,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":6699},[6700,6701,6702,6703,6707,6711,6715,6719,6725],{"id":41,"depth":404,"text":42},{"id":6216,"depth":404,"text":6217},{"id":6233,"depth":404,"text":6234},{"id":6305,"depth":404,"text":6306,"children":6704},[6705,6706],{"id":6328,"depth":401,"text":6329},{"id":6353,"depth":401,"text":6354},{"id":6386,"depth":404,"text":6387,"children":6708},[6709,6710],{"id":6411,"depth":401,"text":6412},{"id":6431,"depth":401,"text":6432},{"id":6497,"depth":404,"text":6498,"children":6712},[6713,6714],{"id":6529,"depth":401,"text":6530},{"id":6547,"depth":401,"text":6548},{"id":6584,"depth":404,"text":6585,"children":6716},[6717,6718],{"id":6594,"depth":401,"text":6595},{"id":6613,"depth":401,"text":6614},{"id":319,"depth":404,"text":320,"children":6720},[6721,6722,6723,6724],{"id":6654,"depth":401,"text":6655},{"id":6661,"depth":401,"text":6662},{"id":6668,"depth":401,"text":6669},{"id":6675,"depth":401,"text":6676},{"id":6682,"depth":404,"text":6683},"Portfolio return is your portfolio's gain or loss over a period. Four ways to calculate it: holding period, weighted average, time-weighted, money-weighted.",{},"/blog/how-to-calculate-portfolio-return","2024-02-02",{"title":6176,"description":6726},"blog/how-to-calculate-portfolio-return","eH_paEjWibuU4ZgB0zucUvjONwMHsCuzbsVVMYnI9c4",{"id":6734,"title":6735,"body":6736,"description":7013,"extension":428,"meta":7014,"navigation":430,"path":7015,"publishedAt":7016,"seo":7017,"seo_description":434,"seo_title":434,"social_image":6986,"stem":7018,"updatedAt":436,"__hash__":7019},"blog/blog/investing-and-the-game-of-chance.md","Investing and the game of chance",{"type":7,"value":6737,"toc":6996},[6738,6741,6743,6760,6764,6767,6770,6774,6777,6785,6788,6794,6797,6803,6806,6810,6813,6816,6828,6831,6835,6838,6849,6853,6856,6862,6868,6871,6877,6882,6885,6889,6892,6918,6925,6929,6932,6935,6938,6940,6944,6947,6951,6954,6958,6961,6965,6968,6972,6975,6988,6991],[35,6739,6740],{},"Investing and trading are games of chance, unlike chess and other deterministic games, which means there is a random element involved in the game. That is frustrating, but it is the reality: you can make the right decisions and still lose money. This article breaks the game into its components, starting with a single coin flip and building up to investing, to show what an investor can actually control.",[39,6742,42],{"id":41},[44,6744,6745,6748,6751,6754,6757],{},[47,6746,6747],{},"Investing is a game of chance rather than a deterministic game, so a correct decision can still produce a loss and a bad decision can still produce a gain.",[47,6749,6750],{},"Every bet, including every investment, reduces to two components: the set of possible outcomes and the probability of each one.",[47,6752,6753],{},"A bet is worth taking when its expected value is greater than zero, which happens when the odds favour you, when the payout is asymmetric in your favour, or both.",[47,6755,6756],{},"Risk of ruin is the chance of losing enough capital that recovery becomes impossible, and it is the reason a high expected return does not justify betting everything on one position.",[47,6758,6759],{},"Investing is harder than a coin flip because nobody tells you the probabilities or the payouts, and the range of outcomes is continuous rather than two-sided.",[39,6761,6763],{"id":6762},"is-investing-a-game-of-chance","Is investing a game of chance?",[35,6765,6766],{},"Investing is a game of chance, in the specific sense that outcomes are drawn from a probability distribution rather than determined by the quality of your decision alone. A well-researched position can lose money and a careless one can make money, and over a small number of decisions you cannot tell the two apart from results.",[35,6768,6769],{},"This is what separates investing from chess. In chess, a better move produces a better position every time. In investing, a better decision produces a better expected outcome, which only reveals itself across many decisions. Everything that follows is about playing a probabilistic game well: estimating the odds, sizing the bet, and surviving long enough for the odds to matter.",[39,6771,6773],{"id":6772},"what-can-a-coin-flip-teach-you-about-investing","What can a coin flip teach you about investing?",[35,6775,6776],{},"A coin flip strips an investment down to its two irreducible components: the outcomes and their probabilities. In the simplest version of the game, a coin with a known chance of landing heads or tails is offered, and the player decides whether to bet. Heads wins money, tails loses money, and the only job is to assess whether the probability and the payout are on the player's side.",[2246,6778,6783],{"className":6779,"code":6781,"language":6782},[6780],"language-text","Coin with 50% chance to land heads and 50% chance to land tails\n* Land Heads => Player wins $ 10\n* Land Tails => Player loses $ 10\n","text",[2252,6784,6781],{"__ignoreMap":400},[35,6786,6787],{},"This is a fair game, meaning that on average players gain nothing from betting on it. Toss the coin once and you either win $10 or lose $10. Toss it enough times and the profit heads toward $0 on average.",[2246,6789,6792],{"className":6790,"code":6791,"language":6782},[6780],"Coin with 51% chance to land heads and 49% chance to land tails\n* Land Heads => Player wins $ 10\n* Land Tails => Player loses $ 10\n",[2252,6793,6791],{"__ignoreMap":400},[35,6795,6796],{},"This is an unfair game that benefits the player. The chance of being at a profit after 100 tosses rises from 0.46 in the fair game to 0.54, on a one percentage point edge.",[2246,6798,6801],{"className":6799,"code":6800,"language":6782},[6780],"Coin with 50% chance to land heads and 50% chance to land tails\n* Land Heads => Player wins $ 10\n* Land Tails => Player loses $ 15\n",[2252,6802,6800],{"__ignoreMap":400},[35,6804,6805],{},"This is also an unfair game, but it worsens the player's odds of being profitable in the long term. The chance of being at a profit after 100 tosses falls to 0.02, even though the coin itself is perfectly fair. The payout asymmetry did all the damage.",[39,6807,6809],{"id":6808},"what-makes-a-bet-worth-taking","What makes a bet worth taking?",[35,6811,6812],{},"A bet is worth taking when its expected value is greater than zero, which requires either favourable odds, a favourable payout ratio, or a combination of the two. Expected value is the sum of each outcome multiplied by its probability, and it is the only test the two-component game needs.",[35,6814,6815],{},"The characteristics of a game worth playing are:",[44,6817,6818,6823],{},[47,6819,6820],{},[287,6821,6822],{},"High chance of winning, low chance of losing.",[47,6824,6825],{},[287,6826,6827],{},"High prize when you win, low penalty when you lose.",[35,6829,6830],{},"Only one of the two statements has to be true. An investment might have a low chance of paying off, but if it pays a great deal when it does and costs little when it does not, the asymmetry can more than offset the low hit rate. This is the arithmetic behind venture-style investing and behind concentrated bets generally, and it is why hit rate alone is a poor way to judge an investor.",[39,6832,6834],{"id":6833},"how-do-you-allocate-limited-capital-across-many-opportunities","How do you allocate limited capital across many opportunities?",[35,6836,6837],{},"With limited capital and many positive-expected-value opportunities, allocation becomes the decision that matters, because you cannot fund every good bet. Change the coin game so that multiple coins are tossed at once and each one costs money upfront, and the game is no longer about identifying a good coin. It is about ranking them and dividing capital between them.",[35,6839,6840,6841,6844,6845,6848],{},"That ranking cannot be done on expected return alone, because expected return says nothing about what happens on the bad outcome. Position size, and therefore ",[219,6842,6843],{"href":1762},"how much weight each holding carries in the portfolio",", is where risk actually enters. ",[219,6846,6847],{"href":878},"How many positions to hold in the first place"," is the same question asked from the other direction.",[39,6850,6852],{"id":6851},"what-is-risk-of-ruin","What is risk of ruin?",[35,6854,6855],{},"Risk of ruin is the risk that an investment loses so much that recovery becomes impossible. It is game over in investing, and it is the one risk that cannot be traded off against return, because a ruined player does not get to play the next round. Consider two coins:",[2246,6857,6860],{"className":6858,"code":6859,"language":6782},[6780],"COIN 1\nCoin with 50% chance to land heads and 50% chance to land tails\n* Land Heads => Player receives 20% of the capital\n* Land Tails => Player loses 10% of the capital\n",[2252,6861,6859],{"__ignoreMap":400},[2246,6863,6866],{"className":6864,"code":6865,"language":6782},[6780],"COIN 2\nCoin with 50% chance to land heads and 50% chance to land tails\n* Land Heads => Player receives 200% of the capital\n* Land Tails => Player loses 100% of the capital\n",[2252,6867,6865],{"__ignoreMap":400},[35,6869,6870],{},"COIN 1 has an expected return of 5% (half of +20% plus half of -10%). COIN 2 has an expected return of 50% (half of +200% plus half of -100%). On expected return alone COIN 2 looks like a clear choice, and some players would put every dollar into it.",[35,6872,6873,6874,733],{},"But COIN 2 carries a 50% chance of losing the entire capital. Imagine building a fortune over thousands of tosses and having a single flip erase it. That is risk of ruin, and it is why capital allocation aims at the best risk-adjusted return rather than the highest expected return. In a portfolio, the observable version of this risk is ",[219,6875,6876],{"href":1218},"maximum drawdown, the largest peak-to-trough fall your capital has suffered",[23,6878],{"alt":6879,"src":6880,"style":624,"width":625,"height":6881,"loading":670,"decoding":30},"Aim for head","/blog_images/investing-and-the-game-of-chance/aim-for-head.gif",557,[35,6883,6884],{},"In the multiple-coin game, then, each opportunity must be assessed individually on expected value and then compared with the others on both risk and reward. The goal is to maximise return while minimising the chance of being ruined.",[39,6886,6888],{"id":6887},"why-is-investing-harder-than-a-coin-flip","Why is investing harder than a coin flip?",[35,6890,6891],{},"Investing is harder than a coin flip because nobody tells you the probabilities or the payouts, and the outcomes are continuous rather than binary. Every component of the coin games still exists in investing, but all of them are hidden.",[44,6893,6894,6900,6906,6912],{},[47,6895,6896,6899],{},[287,6897,6898],{},"Unknown probability."," No one states the chance that a business succeeds.",[47,6901,6902,6905],{},[287,6903,6904],{},"Unknown payout."," No one states how much you gain if it does or lose if it does not.",[47,6907,6908,6911],{},[287,6909,6910],{},"Continuous outcomes."," A coin has two results; an investment has an unbounded range of them.",[47,6913,6914,6917],{},[287,6915,6916],{},"Limited funds."," Capital still has to be split across the opportunities you find.",[35,6919,6920,6921,6924],{},"The job of an investor or trader is therefore to estimate those hidden components and make decisions from the estimates. Methods differ, from discounted cash flow to ",[219,6922,6923],{"href":2137},"comparing performance against a benchmark index",", but the goal is identical: study each investment, estimate its outcomes, and allocate capital to achieve the best risk-adjusted return.",[39,6926,6928],{"id":6927},"what-should-an-investor-do-when-a-good-decision-loses-money","What should an investor do when a good decision loses money?",[35,6930,6931],{},"When a good decision loses money, treat it as a data point about the process, not a verdict on the decision, and change the process only if the reasoning was wrong rather than the outcome. Plenty can go wrong: the risks can be miscalculated, the returns can be overestimated, or the allocation can be mis-sized. And even when all of that is right, chance can still go against you.",[35,6933,6934],{},"Separating the two requires a record. Without one, memory rewrites the reasoning to match the result, and every loss looks avoidable in hindsight. Keeping a full history of positions, their sizes and what each one contributed is the practical form of this: Portseido builds that history from your transactions and reports each holding's return and weight, so you can look back at what you actually decided rather than what you remember deciding.",[35,6936,6937],{},"What is left is to learn from the outcome and improve the process, which is the only part of a game of chance that is genuinely under your control.",[39,6939,320],{"id":319},[140,6941,6943],{"id":6942},"is-investing-the-same-as-gambling","Is investing the same as gambling?",[35,6945,6946],{},"Investing and gambling both involve probabilistic outcomes, but they differ on expected value and time horizon. Casino games are constructed with negative expected value for the player, so playing longer guarantees a worse result. Broad equity ownership has historically carried positive expected value, so a longer horizon works in the investor's favour rather than against it.",[140,6948,6950],{"id":6949},"what-is-expected-value-in-investing","What is expected value in investing?",[35,6952,6953],{},"Expected value is the probability-weighted average of every possible outcome of an investment. A position with a 50% chance of gaining 20% and a 50% chance of losing 10% has an expected value of +5%. Expected value tells you whether a bet is worth taking at all, but says nothing about how large the bet should be.",[140,6955,6957],{"id":6956},"how-do-you-avoid-risk-of-ruin","How do you avoid risk of ruin?",[35,6959,6960],{},"Avoid risk of ruin by sizing positions so that no single loss can end the game, avoiding leverage that can force liquidation, and keeping enough liquidity that you are never forced to sell at the bottom. The test is simple: if this position went to zero tomorrow, could the portfolio still recover? If the answer is no, the position is too large.",[140,6962,6964],{"id":6963},"how-many-decisions-does-it-take-to-tell-skill-from-luck","How many decisions does it take to tell skill from luck?",[35,6966,6967],{},"Judging an investment process on a handful of outcomes is unreliable, because in a probabilistic game short runs of results are dominated by chance. Several years of results across many positions, compared against a relevant benchmark, is the minimum that begins to separate skill from luck. This is also why a single spectacular year proves very little.",[39,6969,6971],{"id":6970},"how-to-track-your-investing-results-in-portseido","How to track your investing results in Portseido",[35,6973,6974],{},"If investing is a game, consider Portseido a scoreboard.",[10,6976,12,6977,12,6980,12,6983],{},[14,6978],{"srcSet":6979,"type":17},"/blog_images/investing-and-the-game-of-chance/portseido-dashboard-dark-theme.avif",[14,6981],{"srcSet":6982,"type":21},"/blog_images/investing-and-the-game-of-chance/portseido-dashboard-dark-theme.webp",[23,6984],{"alt":6985,"src":6986,"style":624,"width":625,"height":6987,"loading":670,"decoding":30},"Portseido portfolio tracker dark theme","/blog_images/investing-and-the-game-of-chance/portseido-dashboard-dark-theme.png",642,[35,6989,6990],{},"Portseido is a portfolio tracker for investors who want to see what their decisions actually produced. It consolidates holdings across brokers and currencies, calculates time-weighted and money-weighted returns, tracks cost basis, dividends and yield on cost, and reports allocation and drawdown, which is the closest observable proxy for how near a portfolio came to ruin. It also benchmarks the portfolio against indices and ETFs, so results can be judged against an alternative rather than in isolation.",[35,6992,1306,6993],{},[219,6994,363],{"href":361,"rel":6995},[240],{"title":400,"searchDepth":401,"depth":401,"links":6997},[6998,6999,7000,7001,7002,7003,7004,7005,7006,7012],{"id":41,"depth":404,"text":42},{"id":6762,"depth":404,"text":6763},{"id":6772,"depth":404,"text":6773},{"id":6808,"depth":404,"text":6809},{"id":6833,"depth":404,"text":6834},{"id":6851,"depth":404,"text":6852},{"id":6887,"depth":404,"text":6888},{"id":6927,"depth":404,"text":6928},{"id":319,"depth":404,"text":320,"children":7007},[7008,7009,7010,7011],{"id":6942,"depth":401,"text":6943},{"id":6949,"depth":401,"text":6950},{"id":6956,"depth":401,"text":6957},{"id":6963,"depth":401,"text":6964},{"id":6970,"depth":404,"text":6971},"Investing is a game of chance: a correct decision can still lose money. The response is to judge the process, size for risk of ruin, and measure results.",{},"/blog/investing-and-the-game-of-chance","2022-07-10",{"title":6735,"description":7013},"blog/investing-and-the-game-of-chance","_aMAJnkHykV5H_5QRy_8JCEn1hrBgNuzWL5MNluY--E",{"id":7021,"title":7022,"body":7023,"description":7423,"extension":428,"meta":7424,"navigation":430,"path":7425,"publishedAt":7426,"seo":7427,"seo_description":434,"seo_title":434,"social_image":7036,"stem":7428,"updatedAt":436,"__hash__":7429},"blog/blog/money-weighted-return.md","What is Money-Weighted Return (MWR)?",{"type":7,"value":7024,"toc":7405},[7025,7038,7041,7043,7060,7064,7067,7070,7072,7075,7083,7098,7107,7117,7123,7127,7130,7137,7153,7161,7165,7168,7227,7236,7239,7242,7246,7249,7252,7256,7259,7264,7320,7327,7331,7334,7354,7361,7363,7367,7370,7374,7377,7381,7384,7388,7391,7395,7398,7403],[10,7026,12,7027,12,7030,12,7033],{},[14,7028],{"srcSet":7029,"type":17},"/blog_images/money-weighted-return/money-weighted-return-cover.avif",[14,7031],{"srcSet":7032,"type":21},"/blog_images/money-weighted-return/money-weighted-return-cover.webp",[23,7034],{"alt":7035,"src":7036,"style":4975,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":7037},"Money-Weighted Return (MWR) cover image","/blog_images/money-weighted-return/money-weighted-return-cover.png",[33],[35,7039,7040],{},"Money-weighted return (MWR) is a measure of investment performance that accounts for the size and timing of every cash flow into and out of a portfolio. It is the single rate of return that makes the discounted value of all those cash flows, plus the ending portfolio value, equal the amount originally invested. Money-weighted return is the same number as the internal rate of return (IRR), and it is also called the dollar-weighted return.",[39,7042,42],{"id":41},[44,7044,7045,7048,7051,7054,7057],{},[47,7046,7047],{},"Money-weighted return (MWR) measures the return an investor personally earned, because it counts the size and timing of every deposit, withdrawal and dividend.",[47,7049,7050],{},"Money-weighted return is mathematically identical to the internal rate of return (IRR), and is also known as the dollar-weighted return.",[47,7052,7053],{},"Money-weighted return is calculated with the XIRR function in Excel or Google Sheets, entering contributions as negative amounts and withdrawals, dividends and the ending value as positive amounts.",[47,7055,7056],{},"Money-weighted return rises when a large deposit lands before a period of strong performance and falls when it lands before a decline, because bigger balances carry more weight.",[47,7058,7059],{},"Money-weighted return differs from time-weighted return, which ignores the size and timing of cash flows and measures how the investments performed rather than what the investor earned.",[39,7061,7063],{"id":7062},"what-is-money-weighted-return-mwr","What is money-weighted return (MWR)?",[35,7065,7066],{},"Money-weighted return (MWR) is a performance measurement that takes into account every cash flow entering and leaving a portfolio, weighting each period by how much money was invested during it. That is what separates it from a simple percentage gain: a period in which $50,000 was invested influences the result far more than one in which $500 was.",[35,7068,7069],{},"The cash flows involved are contributions, withdrawals, dividends and interest received, and the terminal value of the portfolio. Because larger balances carry more weight, money-weighted return answers the question an individual investor usually cares about, which is what their own money actually earned, timing decisions included.",[39,7071,6585],{"id":6584},[35,7073,7074],{},"Money-weighted return is calculated by solving for the rate of return that makes the discounted value of all future cash flows, plus the discounted terminal portfolio value, equal the portfolio value at the start.",[10,7076,12,7077,12,7079,12,7081],{},[14,7078],{"srcSet":6600,"type":17},[14,7080],{"srcSet":6603,"type":21},[23,7082],{"alt":6595,"src":6606,"style":4549,"width":28,"height":6607,"decoding":30,"fetchPriority":31},[35,7084,7085,7086,7089,7090,7093,7094,7097],{},"Written out as text, where ",[2252,7087,7088],{},"PV_0"," is the portfolio value at time 0, ",[2252,7091,7092],{},"PV_N"," is the portfolio value at time N, and ",[2252,7095,7096],{},"CF_k"," is the net cash flow during period k:",[2246,7099,7101],{"className":2248,"code":7100,"language":2250,"meta":400,"style":400},"PV_0 = CF_1/(1 + IRR)^1 + CF_2/(1 + IRR)^2 + ... + CF_N/(1 + IRR)^N + PV_N/(1 + IRR)^N\n",[2252,7102,7103],{"__ignoreMap":400},[2255,7104,7105],{"class":2257,"line":2258},[2255,7106,7100],{},[35,7108,7109,7110,7113,7114,7116],{},"The ",[2252,7111,7112],{},"IRR"," that solves this equation is the money-weighted return. Each ",[2252,7115,7096],{}," is stated from the investor's point of view: cash received, such as a withdrawal or a dividend, is positive, while cash paid in as a further deposit is negative.",[35,7118,7119,7120,733],{},"Solving that equation by hand is impractical once there is more than one cash flow, because there is no closed-form answer. In practice it is solved numerically by a spreadsheet, a calculator or a portfolio tracker. You can also use our ",[219,7121,7122],{"href":6648},"free money-weighted return calculator",[39,7124,7126],{"id":7125},"how-do-you-calculate-money-weighted-return-in-excel-or-google-sheets","How do you calculate money-weighted return in Excel or Google Sheets?",[35,7128,7129],{},"Money-weighted return is calculated in Excel or Google Sheets with the XIRR function, which takes a column of dated cash flows and returns the annualised rate that solves for them.",[35,7131,7132,7133,7136],{},"Enter every cash flow with its date, then use ",[2252,7134,7135],{},"=XIRR(values, dates)",". The signs matter, because XIRR treats the portfolio as a project you fund and are paid back from:",[44,7138,7139,7146],{},[47,7140,7141,7142,7145],{},"Enter the initial portfolio value and every later contribution as a ",[287,7143,7144],{},"negative"," number, because that is money leaving your pocket.",[47,7147,7148,7149,7152],{},"Enter dividends, cash withdrawals, sale proceeds and the final portfolio value as ",[287,7150,7151],{},"positive"," numbers.",[10,7154,12,7155,12,7157,12,7159],{},[14,7156],{"srcSet":6630,"type":17},[14,7158],{"srcSet":6633,"type":21},[23,7160],{"alt":6636,"src":6637,"style":6638,"width":28,"height":6639,"decoding":30,"fetchPriority":31},[140,7162,7164],{"id":7163},"money-weighted-return-calculation-example","Money-weighted return calculation example",[35,7166,7167],{},"An account opened with $10,000, which received a $200 dividend, took a $6,000 deposit and was worth $20,000 five years later, has a money-weighted return of about 6% a year.",[80,7169,7170,7181],{},[83,7171,7172],{},[86,7173,7174,7176,7179],{},[89,7175,4448],{},[89,7177,7178],{},"Cash flow",[89,7180,1415],{},[96,7182,7183,7194,7205,7216],{},[86,7184,7185,7188,7191],{},[101,7186,7187],{},"1 Jan 2018",[101,7189,7190],{},"-$10,000",[101,7192,7193],{},"Initial portfolio value",[86,7195,7196,7199,7202],{},[101,7197,7198],{},"1 Jan 2020",[101,7200,7201],{},"+$200",[101,7203,7204],{},"Dividend received",[86,7206,7207,7210,7213],{},[101,7208,7209],{},"1 Jan 2021",[101,7211,7212],{},"-$6,000",[101,7214,7215],{},"Cash deposited",[86,7217,7218,7221,7224],{},[101,7219,7220],{},"1 Jan 2023",[101,7222,7223],{},"+$20,000",[101,7225,7226],{},"Terminal portfolio value",[2246,7228,7230],{"className":2248,"code":7229,"language":2250,"meta":400,"style":400},"=XIRR(B2:B7, A2:A7)  ->  approximately 6%\n",[2252,7231,7232],{"__ignoreMap":400},[2255,7233,7234],{"class":2257,"line":2258},[2255,7235,7229],{},[35,7237,7238],{},"The account returned $20,200 in total against the $16,000 paid in, but that $4,200 headline gain says nothing about the rate, because the $6,000 was invested for only two of the five years. The money-weighted return of roughly 6% a year is the single rate that reconciles all four dated amounts at once.",[35,7240,7241],{},"Redoing an XIRR every time you deposit, receive a dividend or open an account at another broker is the part most investors quietly abandon. Portseido calculates money-weighted and time-weighted returns from your transaction history automatically, across brokers and currencies, so the figure stays current without spreadsheet maintenance.",[39,7243,7245],{"id":7244},"is-money-weighted-return-the-same-as-irr","Is money-weighted return the same as IRR?",[35,7247,7248],{},"Yes. Money-weighted return is mathematically identical to the internal rate of return (IRR): both are the discount rate that makes the net present value of a series of dated cash flows equal zero.",[35,7250,7251],{},"The name money-weighted return is used in portfolio reporting, while internal rate of return is the term used in corporate finance and project appraisal. The third name for the same figure, dollar-weighted return, describes the mechanism: performance during periods when more money was invested weighs more heavily on the result.",[39,7253,7255],{"id":7254},"what-is-the-difference-between-time-weighted-and-money-weighted-returns","What is the difference between time-weighted and money-weighted returns?",[35,7257,7258],{},"Money-weighted return counts the size and timing of cash flows and measures what the investor earned, while time-weighted return removes cash flows entirely and measures how the investments performed.",[35,7260,7261,7263],{},[219,7262,6503],{"href":3914}," splits the period into sub-periods at every deposit or withdrawal, calculates each sub-period's return separately, and chains them together so each sub-period counts equally regardless of the balance at the time. That makes it the fair way to score an investment manager who does not control when clients pay in.",[80,7265,7266,7276],{},[83,7267,7268],{},[86,7269,7270,7272,7274],{},[89,7271],{},[89,7273,3940],{},[89,7275,3915],{},[96,7277,7278,7289,7299,7309],{},[86,7279,7280,7283,7286],{},[101,7281,7282],{},"Cash flow size",[101,7284,7285],{},"Counted",[101,7287,7288],{},"Ignored",[86,7290,7291,7294,7296],{},[101,7292,7293],{},"Cash flow timing",[101,7295,7285],{},[101,7297,7298],{},"Sets sub-period boundaries only",[86,7300,7301,7303,7306],{},[101,7302,2456],{},[101,7304,7305],{},"What did I actually earn?",[101,7307,7308],{},"How did the investments perform?",[86,7310,7311,7314,7317],{},[101,7312,7313],{},"Typical use",[101,7315,7316],{},"Judging your own results, contributions included",[101,7318,7319],{},"Comparing funds, managers and benchmarks",[35,7321,7322,7323,7326],{},"The two figures answer different questions and will normally differ for the same account. A fuller ",[219,7324,7325],{"href":3959},"comparison of simple return, time-weighted return and money-weighted return"," works through the same portfolio under all three methods.",[39,7328,7330],{"id":7329},"when-should-you-use-money-weighted-return","When should you use money-weighted return?",[35,7332,7333],{},"Use money-weighted return when you control the timing of your own contributions and want a figure that grades those decisions along with the investments themselves.",[44,7335,7336,7342,7348],{},[47,7337,7338,7341],{},[287,7339,7340],{},"You choose when to invest."," If you deliberately hold cash back and deploy it when opportunities appear, money-weighted return is what rewards or punishes that judgement.",[47,7343,7344,7347],{},[287,7345,7346],{},"You want your personal outcome."," Money-weighted return is the closest thing to a personal rate of return on the money you committed.",[47,7349,7350,7353],{},[287,7351,7352],{},"The account has irregular cash flows."," Money-weighted return handles uneven amounts on uneven dates, which a simple percentage gain cannot.",[35,7355,7356,7357,7360],{},"The limitation of money-weighted return is that it grades cash-flow timing even when the timing was not an investment decision. An investor who receives an annual work bonus and invests it immediately gets a money-weighted return shaped by their employer's payroll calendar. In that case the number reflects luck rather than skill, and time-weighted return is the fairer read. Money-weighted return is one of ",[219,7358,7359],{"href":1030},"four common ways to calculate portfolio return",", and many investors report it next to time-weighted return rather than choosing one.",[39,7362,320],{"id":319},[140,7364,7366],{"id":7365},"can-money-weighted-return-be-negative","Can money-weighted return be negative?",[35,7368,7369],{},"Yes. Money-weighted return is negative whenever the total value received back, including the ending portfolio value, is worth less than the amounts paid in once timing is accounted for. A negative money-weighted return can occur even in a portfolio whose investments rose, if most of the money was contributed shortly before a decline.",[140,7371,7373],{"id":7372},"why-is-my-money-weighted-return-different-from-my-time-weighted-return","Why is my money-weighted return different from my time-weighted return?",[35,7375,7376],{},"Money-weighted return and time-weighted return differ because money-weighted return weights each period by the amount invested and time-weighted return weights every period equally. If your money-weighted return is higher, your larger contributions happened to be invested during stronger periods. If it is lower, the bigger balances were exposed to the weaker periods.",[140,7378,7380],{"id":7379},"does-money-weighted-return-include-dividends","Does money-weighted return include dividends?",[35,7382,7383],{},"Yes. Dividends and interest received are cash flows into the calculation, entered as positive amounts on the date they were paid. Dividends reinvested inside the portfolio need no separate entry, because they are already reflected in the terminal portfolio value. Leaving dividends out understates the return of income-paying holdings.",[140,7385,7387],{"id":7386},"why-does-xirr-return-an-error","Why does XIRR return an error?",[35,7389,7390],{},"XIRR returns an error most often because the cash flows all share the same sign, because no date column was supplied, or because the values and dates ranges are different lengths. XIRR needs at least one negative and one positive amount to solve for a rate. Highly irregular flows can also need a starting guess as the function's third argument.",[39,7392,7394],{"id":7393},"how-to-track-money-weighted-return-in-portseido","How to track money-weighted return in Portseido",[35,7396,7397],{},"Portseido is a portfolio tracker that calculates money-weighted return, also known as XIRR, from your transaction history, so every dated deposit, withdrawal and dividend is already in the calculation. It consolidates holdings across brokers and currencies, reports simple return, time-weighted return and money-weighted return side by side, tracks cost basis, dividends and yield on cost, and benchmarks the portfolio against indices and ETFs. Transactions import from brokers or from a CSV.",[35,7399,1306,7400],{},[219,7401,363],{"href":361,"rel":7402},[240],[2524,7404,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":7406},[7407,7408,7409,7410,7413,7414,7415,7416,7422],{"id":41,"depth":404,"text":42},{"id":7062,"depth":404,"text":7063},{"id":6584,"depth":404,"text":6585},{"id":7125,"depth":404,"text":7126,"children":7411},[7412],{"id":7163,"depth":401,"text":7164},{"id":7244,"depth":404,"text":7245},{"id":7254,"depth":404,"text":7255},{"id":7329,"depth":404,"text":7330},{"id":319,"depth":404,"text":320,"children":7417},[7418,7419,7420,7421],{"id":7365,"depth":401,"text":7366},{"id":7372,"depth":401,"text":7373},{"id":7379,"depth":401,"text":7380},{"id":7386,"depth":401,"text":7387},{"id":7393,"depth":404,"text":7394},"Money-weighted return (MWR) is the rate of return that accounts for the size and timing of every cash flow into and out of a portfolio. It equals the IRR.",{},"/blog/money-weighted-return","2023-10-23",{"title":7022,"description":7423},"blog/money-weighted-return","JiiX9tLy3YKUEm7LU5o76Tqx7GW-nmrlNEJHgnWLjRU",{"id":7431,"title":7432,"body":7433,"description":7811,"extension":428,"meta":7812,"navigation":430,"path":7813,"publishedAt":7814,"seo":7815,"seo_description":434,"seo_title":434,"social_image":7816,"stem":7817,"updatedAt":7814,"__hash__":7818},"blog/blog/nancy-pelosi-stock-trading.md","Nancy Pelosi Stock Portfolio Performance 2024",{"type":7,"value":7434,"toc":7794},[7435,7438,7440,7457,7461,7464,7467,7493,7496,7508,7511,7515,7518,7521,7533,7540,7544,7553,7565,7568,7582,7585,7589,7592,7604,7616,7622,7625,7637,7641,7648,7651,7705,7708,7720,7724,7727,7738,7741,7743,7747,7750,7754,7757,7761,7764,7768,7774,7778,7781,7785,7788],[35,7436,7437],{},"Nancy Pelosi's stock transactions are public for one reason: the STOCK Act requires members of the United States Congress to disclose securities trades made by themselves, their spouses and their dependent children. This article explains that disclosure mechanism, walks through what a portfolio reconstructed from those filings looked like in the February 2024 analysis below, and is explicit about the limits of what public filings can actually tell you.",[39,7439,42],{"id":41},[44,7441,7442,7445,7448,7451,7454],{},[47,7443,7444],{},"Nancy Pelosi's stock trades are public because the STOCK Act of 2012 requires members of Congress to file a periodic transaction report for securities trades, covering the member, their spouse and their dependent children.",[47,7446,7447],{},"Congressional periodic transaction reports disclose the ticker, the transaction date and a broad dollar range, but never the exact amount, so any portfolio reconstructed from them is an estimate.",[47,7449,7450],{},"A portfolio reconstructed from Nancy Pelosi's public filings showed a total return of 50.89% for the year to February 2024, against 26.83% for the S&P 500, 38% for the Nasdaq and 13% for the NYSE in the same analysis.",[47,7452,7453],{},"The reconstructed portfolio was roughly 90% allocated to technology stocks in that February 2024 analysis, which is the main explanation for both its return and its risk profile.",[47,7455,7456],{},"Congressional disclosures are filed up to 45 days after a trade, so they are a historical record rather than a signal that can be acted on at the same prices.",[39,7458,7460],{"id":7459},"how-are-congressional-stock-trades-disclosed","How are congressional stock trades disclosed?",[35,7462,7463],{},"Congressional stock trades are disclosed under the Stop Trading on Congressional Knowledge Act of 2012, known as the STOCK Act, which requires members of Congress to file a periodic transaction report for covered securities transactions no later than 45 days after the trade.",[35,7465,7466],{},"The mechanism has a few features that matter for anyone reading the filings:",[44,7468,7469,7475,7481,7487],{},[47,7470,7471,7474],{},[287,7472,7473],{},"Who is covered."," A periodic transaction report covers transactions by the member, their spouse and their dependent children. A filing under a member's name therefore does not indicate who made the decision.",[47,7476,7477,7480],{},[287,7478,7479],{},"What must be reported."," Purchases, sales and exchanges of stocks, bonds, options and other covered securities above a $1,000 threshold.",[47,7482,7483,7486],{},[287,7484,7485],{},"How amounts appear."," Values are reported in ranges, such as $1,001 to $15,000 or $250,001 to $500,000, rather than as exact figures.",[47,7488,7489,7492],{},[287,7490,7491],{},"Where they are published."," For House members, filings are published by the Clerk of the House on the public disclosure website, as scanned or generated PDFs.",[35,7494,7495],{},"The reports are a transparency requirement. They record that a transaction occurred and roughly how large it was; they do not establish anything about why it occurred, and this article makes no claim on that question.",[10,7497,12,7498,12,7501,12,7504],{},[14,7499],{"srcSet":7500,"type":17},"/blog_images/nancy-pelosi-stock-trading/0-pelosi.avif",[14,7502],{"srcSet":7503,"type":21},"/blog_images/nancy-pelosi-stock-trading/0-pelosi.webp",[23,7505],{"alt":7506,"src":7507,"style":624,"width":625,"height":626,"decoding":30},"Nancy Pelosi stock portfolio","/blog_images/nancy-pelosi-stock-trading/0-pelosi.png",[35,7509,7510],{},"Nancy Patricia Pelosi, born 26 March 1940, served in the United States House of Representatives and was the first woman to serve as Speaker of the House and the first woman to lead a major US political party. Her filings attract attention largely because of that public profile, not because the disclosure requirement applies differently to her than to any other member.",[39,7512,7514],{"id":7513},"what-did-nancy-pelosis-disclosed-portfolio-return","What did Nancy Pelosi's disclosed portfolio return?",[35,7516,7517],{},"A portfolio reconstructed from Nancy Pelosi's public filings returned 50.89% over the year to February 2024 in the analysis below, compared with 26.83% for the S&P 500, 38% for the Nasdaq and 13% for the NYSE over the same period.",[35,7519,7520],{},"Separately, the New York Post reported in January 2024 that her portfolio had gained 65% over the prior year, against a 24% return for the S&P 500. The two figures come from different reconstructions with different start dates and assumptions, which is itself a useful illustration: any number derived from range-based disclosures depends heavily on how the gaps are filled.",[10,7522,12,7523,12,7526,12,7529],{},[14,7524],{"srcSet":7525,"type":17},"/blog_images/nancy-pelosi-stock-trading/4-benchmark.avif",[14,7527],{"srcSet":7528,"type":21},"/blog_images/nancy-pelosi-stock-trading/4-benchmark.webp",[23,7530],{"alt":7531,"src":7532,"style":624,"width":625,"height":626,"decoding":30},"Benchmark from Nancy Pelosi portfolio","/blog_images/nancy-pelosi-stock-trading/4-benchmark.png",[35,7534,7535,7536,7539],{},"Comparing any portfolio against several indices at once, as above, is more informative than picking one. A technology-heavy portfolio measured against the NYSE will look far stronger than the same portfolio measured against the Nasdaq, which is why ",[219,7537,7538],{"href":2137},"choosing a benchmark that matches what you actually hold"," is the first decision in any performance comparison.",[39,7541,7543],{"id":7542},"how-was-this-portfolio-reconstructed-from-public-filings","How was this portfolio reconstructed from public filings?",[35,7545,7546,7547,7552],{},"This analysis was built by taking Nancy Pelosi's disclosed transactions from ",[219,7548,7551],{"href":7549,"rel":7550},"https://disclosures-clerk.house.gov/public_disc/ptr-pdfs/2023/20023192.pdf",[240],"official filings"," published by the United States House of Representatives, starting from the 2021 data, and entering them into Portseido as a hypothetical portfolio.",[10,7554,12,7555,12,7558,12,7561],{},[14,7556],{"srcSet":7557,"type":17},"/blog_images/nancy-pelosi-stock-trading/1-gov-report.avif",[14,7559],{"srcSet":7560,"type":21},"/blog_images/nancy-pelosi-stock-trading/1-gov-report.webp",[23,7562],{"alt":7563,"src":7564,"style":624,"width":625,"height":626,"decoding":30},"official filings by the United States House of Representatives","/blog_images/nancy-pelosi-stock-trading/1-gov-report.png",[35,7566,7567],{},"Two assumptions had to be made, and both are conservative:",[178,7569,7570,7576],{},[47,7571,7572,7575],{},[287,7573,7574],{},"Transaction size."," The filings give only a range, so the minimum of each disclosed range was used. That models the smallest position consistent with the disclosure, and therefore the smallest possible dollar gain.",[47,7577,7578,7581],{},[287,7579,7580],{},"Instrument type."," Where a filing disclosed an option contract, the analysis used the price of the underlying asset on that date instead of the option. Options are leveraged, so substituting the underlying stock produces a materially smaller return than the option itself would have.",[35,7583,7584],{},"Both choices understate rather than overstate the result. That is deliberate, but it also means the output is an approximation of a disclosed trading record, not a reproduction of an actual account.",[39,7586,7588],{"id":7587},"what-did-the-reconstructed-portfolio-hold","What did the reconstructed portfolio hold?",[35,7590,7591],{},"The portfolio reconstructed from Nancy Pelosi's filings was roughly 90% allocated to technology stocks in the February 2024 analysis, a concentration that explains most of its performance in that period.",[10,7593,12,7594,12,7597,12,7600],{},[14,7595],{"srcSet":7596,"type":17},"/blog_images/nancy-pelosi-stock-trading/3-overall-performance.avif",[14,7598],{"srcSet":7599,"type":21},"/blog_images/nancy-pelosi-stock-trading/3-overall-performance.webp",[23,7601],{"alt":7602,"src":7603,"style":624,"width":625,"height":626,"decoding":30},"overall stock performance from Nancy Pelosi portfolio","/blog_images/nancy-pelosi-stock-trading/3-overall-performance.png",[10,7605,12,7606,12,7609,12,7612],{},[14,7607],{"srcSet":7608,"type":17},"/blog_images/nancy-pelosi-stock-trading/5-allocation.avif",[14,7610],{"srcSet":7611,"type":21},"/blog_images/nancy-pelosi-stock-trading/5-allocation.webp",[23,7613],{"alt":7614,"src":7615,"style":624,"width":625,"height":626,"decoding":30},"Portfolio allocation from Nancy Pelosi portfolio","/blog_images/nancy-pelosi-stock-trading/5-allocation.png",[35,7617,7618,7619,733],{},"A 90% single-sector weighting is the dominant fact about this portfolio. Technology was the strongest-performing US sector from late 2023 into early 2024, so a portfolio allocated that way would have outperformed a broad index in that window largely as a consequence of the allocation itself. The same concentration works in reverse: in 2022, when technology fell hard, it would have fallen much further than the S&P 500. That is a general property of concentration rather than a comment on these particular filings, and it is why ",[219,7620,7621],{"href":1762},"portfolio weight is worth tracking alongside returns",[35,7623,7624],{},"One individual position illustrates the point. A disclosed purchase of Nvidia call options in November 2023 produced, in this reconstruction using the underlying stock price rather than the options, a return of 61% in roughly half a year.",[10,7626,12,7627,12,7630,12,7633],{},[14,7628],{"srcSet":7629,"type":17},"/blog_images/nancy-pelosi-stock-trading/6-nvidia.avif",[14,7631],{"srcSet":7632,"type":21},"/blog_images/nancy-pelosi-stock-trading/6-nvidia.webp",[23,7634],{"alt":7635,"src":7636,"style":624,"width":625,"height":626,"decoding":30},"Portfolio allocation in Nvidia from Nancy Pelosi portfolio","/blog_images/nancy-pelosi-stock-trading/6-nvidia.png",[39,7638,7640],{"id":7639},"what-do-congressional-disclosures-not-tell-you","What do congressional disclosures not tell you?",[35,7642,7643,7644,7647],{},"Congressional disclosures do not tell you the exact amount traded, ",[219,7645,7646],{"href":6324},"the cost basis of a position",", the size of the portfolio it sits in, or anything about the reasoning behind a trade.",[35,7649,7650],{},"The specific gaps are worth listing, because they set the ceiling on what any analysis of this data can claim:",[80,7652,7653,7663],{},[83,7654,7655],{},[86,7656,7657,7660],{},[89,7658,7659],{},"What the filing shows",[89,7661,7662],{},"What it does not show",[96,7664,7665,7673,7681,7689,7697],{},[86,7666,7667,7670],{},[101,7668,7669],{},"Ticker symbol",[101,7671,7672],{},"Number of shares or contracts",[86,7674,7675,7678],{},[101,7676,7677],{},"Transaction date",[101,7679,7680],{},"The price actually paid",[86,7682,7683,7686],{},[101,7684,7685],{},"A broad dollar range",[101,7687,7688],{},"The exact amount",[86,7690,7691,7694],{},[101,7692,7693],{},"Buy, sell or exchange",[101,7695,7696],{},"Position size relative to total net worth",[86,7698,7699,7702],{},[101,7700,7701],{},"Filer, spouse or dependent child",[101,7703,7704],{},"Who made the investment decision",[35,7706,7707],{},"There is also a timing gap. A report can be filed up to 45 days after the transaction, so by the time a trade is public the price has usually moved. Anyone reading disclosures as a source of ideas is reading a record of what happened, not a live signal.",[10,7709,12,7710,12,7713,12,7716],{},[14,7711],{"srcSet":7712,"type":17},"/blog_images/nancy-pelosi-stock-trading/7-gain.avif",[14,7714],{"srcSet":7715,"type":21},"/blog_images/nancy-pelosi-stock-trading/7-gain.webp",[23,7717],{"alt":7718,"src":7719,"style":624,"width":625,"height":626,"decoding":30},"Portfolio gain from Nancy Pelosi portfolio","/blog_images/nancy-pelosi-stock-trading/7-gain.png",[39,7721,7723],{"id":7722},"can-investors-follow-congressional-stock-disclosures","Can investors follow congressional stock disclosures?",[35,7725,7726],{},"Investors can follow congressional stock disclosures, and some exchange-traded funds are built specifically to do so, but the 45-day reporting lag means the entry prices will differ from those in the filings.",[35,7728,7729,7730,7737],{},"One example is ",[287,7731,7732],{},[219,7733,7736],{"href":7734,"rel":7735},"https://markets.ft.com/data/etfs/tearsheet/summary?s=NANC:BTQ:USD",[240],"NANC",", an ETF that debuted in February 2023 and tracks equities purchased by Democratic members of Congress. Funds of this kind rebuild their holdings from the same public periodic transaction reports described above, so they inherit the same lag and the same range-based estimation of position sizes.",[35,7739,7740],{},"Whether that is a sensible way to invest is a separate question from whether it is possible. A strategy assembled from disclosures is, in practice, a concentrated portfolio chosen by someone else's criteria, and its behaviour is driven by its sector weightings, as the roughly 90% technology allocation in this analysis shows. Measuring it against a benchmark over several years, rather than over a strong quarter, is the only way to see whether the approach adds anything over a broad index.",[39,7742,320],{"id":319},[140,7744,7746],{"id":7745},"what-is-the-stock-act","What is the STOCK Act?",[35,7748,7749],{},"The Stop Trading on Congressional Knowledge Act of 2012 is a US law that prohibits members of Congress and federal employees from using non-public information gained through their positions for personal financial benefit, and requires them to publicly disclose covered securities transactions. Under the Act, transactions above $1,000 must be reported no later than 45 days after they occur, in publicly accessible periodic transaction reports.",[140,7751,7753],{"id":7752},"how-quickly-are-congressional-stock-trades-made-public","How quickly are congressional stock trades made public?",[35,7755,7756],{},"Congressional stock trades become public when the periodic transaction report is filed, which can be up to 45 days after the transaction. In practice the delay ranges from a few days to the full window. That lag means the market price at the time of disclosure is often well away from the price in the filing, so the filings function as a historical record rather than a tradeable signal.",[140,7758,7760],{"id":7759},"why-do-different-reports-give-different-returns-for-the-same-portfolio","Why do different reports give different returns for the same portfolio?",[35,7762,7763],{},"Different reports give different returns because the underlying filings disclose dollar ranges rather than exact amounts, so every reconstruction has to choose an assumption. Using the minimum of each range, the midpoint, or the maximum produces materially different portfolio weights and therefore different returns. Start dates, dividend treatment and whether options are modelled as options or as the underlying stock all move the figure too.",[140,7765,7767],{"id":7766},"does-a-high-return-in-one-year-mean-a-strategy-is-good","Does a high return in one year mean a strategy is good?",[35,7769,7770,7771,733],{},"A single year of high returns does not establish that a strategy is good, because a concentrated sector bet will beat the market whenever that sector leads and lose to it whenever the sector lags. Judging a strategy requires several years of returns measured against an appropriate benchmark, plus ",[219,7772,7773],{"href":1218},"the drawdown it produced along the way",[140,7775,7777],{"id":7776},"are-congressional-disclosures-a-complete-picture-of-a-members-investments","Are congressional disclosures a complete picture of a member's investments?",[35,7779,7780],{},"Congressional disclosures are not a complete picture. They cover transactions in reportable securities above the threshold, but they do not show total portfolio size, cash holdings, cost basis, or assets outside the reporting requirements. A reconstructed portfolio built from them shows the disclosed trades in isolation, not the member's overall financial position.",[39,7782,7784],{"id":7783},"how-to-track-a-portfolio-built-from-public-filings-in-portseido","How to track a portfolio built from public filings in Portseido",[35,7786,7787],{},"Portseido is the portfolio tracker used to reconstruct and measure the portfolio in this analysis, and it does the same for a personal one. It consolidates holdings across multiple brokers and currencies, calculates time-weighted and money-weighted returns from a transaction history, tracks cost basis, records dividends and yield on cost, benchmarks a portfolio against indices and ETFs, and shows allocation and drawdown.",[35,7789,7790,7791],{},"Transactions can be entered manually or imported from a broker or a spreadsheet, which is what makes a filings-based reconstruction like this one possible in the first place. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations, and it takes no view on any public figure's trading. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,7792,363],{"href":361,"rel":7793},[240],{"title":400,"searchDepth":401,"depth":401,"links":7795},[7796,7797,7798,7799,7800,7801,7802,7803,7810],{"id":41,"depth":404,"text":42},{"id":7459,"depth":404,"text":7460},{"id":7513,"depth":404,"text":7514},{"id":7542,"depth":404,"text":7543},{"id":7587,"depth":404,"text":7588},{"id":7639,"depth":404,"text":7640},{"id":7722,"depth":404,"text":7723},{"id":319,"depth":404,"text":320,"children":7804},[7805,7806,7807,7808,7809],{"id":7745,"depth":401,"text":7746},{"id":7752,"depth":401,"text":7753},{"id":7759,"depth":401,"text":7760},{"id":7766,"depth":401,"text":7767},{"id":7776,"depth":401,"text":7777},{"id":7783,"depth":404,"text":7784},"Nancy Pelosi's stock trades are public because the STOCK Act requires disclosure. Here is what those 2024 filings showed and what they leave out.",{},"/blog/nancy-pelosi-stock-trading","2024-02-25",{"title":7432,"description":7811},"/blog_images/nancy-pelosi-stock-trading/2-banner-pelosi.png","blog/nancy-pelosi-stock-trading","rUxOr1M411tn7ZbaMNk-TsMVLT7YGXRKRw0GK64XjfA",{"id":7820,"title":7821,"body":7822,"description":8527,"extension":428,"meta":8528,"navigation":430,"path":8529,"publishedAt":8530,"seo":8531,"seo_description":434,"seo_title":434,"social_image":7835,"stem":8532,"updatedAt":436,"__hash__":8533},"blog/blog/portfolio-performance-evaluation.md","Portfolio Performance Evaluation - Metrics to Use",{"type":7,"value":7823,"toc":8496},[7824,7837,7840,7842,7859,7863,7866,7869,7873,7876,7879,7883,7886,7936,7939,7943,7946,7950,7953,7968,7977,7980,7983,7988,7996,8015,8025,8028,8033,8041,8049,8059,8062,8066,8069,8084,8093,8116,8120,8123,8127,8130,8145,8154,8168,8172,8175,8190,8199,8212,8214,8217,8232,8241,8253,8257,8260,8268,8277,8283,8287,8290,8310,8314,8317,8320,8325,8340,8349,8362,8365,8370,8384,8393,8404,8408,8411,8426,8435,8443,8447,8450,8458,8460,8464,8467,8471,8474,8478,8481,8485,8488,8494],[10,7825,12,7826,12,7829,12,7832],{},[14,7827],{"srcSet":7828,"type":17},"/blog_images/portfolio-performance-evaluation/portfolio-performance-evaluation-cover.avif",[14,7830],{"srcSet":7831,"type":21},"/blog_images/portfolio-performance-evaluation/portfolio-performance-evaluation-cover.webp",[23,7833],{"alt":7834,"src":7835,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":7836},"How to evaluate portfolio performance","/blog_images/portfolio-performance-evaluation/portfolio-performance-evaluation-cover.png",[33],[35,7838,7839],{},"Portfolio performance evaluation is the process of measuring how well an investment portfolio has done, on both the return it produced and the risk it took to produce it. Without it there is no way to tell whether a strategy is working or whether a good year was simply a rising market. The metrics used for return, for risk, and for the two combined are set out below.",[39,7841,42],{"id":41},[44,7843,7844,7847,7850,7853,7856],{},[47,7845,7846],{},"Portfolio performance evaluation measures a portfolio on three fronts: how much it returned, how much risk it carried, and how much return it produced per unit of that risk.",[47,7848,7849],{},"Return metrics include simple return, time-weighted return and money-weighted return, and they give different answers for the same portfolio because each treats deposits and withdrawals differently.",[47,7851,7852],{},"Risk metrics include the standard deviation of returns, downside risk deviation, beta and maximum drawdown, each defining risk in a different way.",[47,7854,7855],{},"Risk-adjusted return metrics such as the Sharpe ratio, Treynor ratio and Sortino ratio divide excess return by a measure of risk, so portfolios of different volatility can be compared on one scale.",[47,7857,7858],{},"Every metric described here is backward-looking, calculated from historical data, so none of them predicts how a portfolio will behave next.",[39,7860,7862],{"id":7861},"what-is-portfolio-performance-evaluation","What is portfolio performance evaluation?",[35,7864,7865],{},"Portfolio performance evaluation is the assessment of an investment portfolio's results against its objectives, covering both the return earned and the risk taken to earn it. It is a scoreboard rather than a forecast: it grades decisions already made.",[35,7867,7868],{},"Investing has two sides regardless of strategy, return and risk, so a complete evaluation asks three questions. How much did the portfolio make? How much risk did it carry? Was the return worth the risk? A portfolio judged on return alone looks excellent right up until the risk that produced it arrives.",[39,7870,7872],{"id":7871},"why-should-you-evaluate-your-portfolios-performance","Why should you evaluate your portfolio's performance?",[35,7874,7875],{},"Evaluating portfolio performance tells you whether your investments are meeting your goals and where the gap is if they are not, which is the only reliable basis for changing anything.",[35,7877,7878],{},"A 10% return sounds good on its own. Set against a benchmark that returned 20% over the same period, it looks like an expensive year. Regular evaluation separates skill from market conditions and shows whether the risk in the portfolio is the risk you intended to take.",[39,7880,7882],{"id":7881},"which-metrics-do-you-need-to-evaluate-a-portfolio","Which metrics do you need to evaluate a portfolio?",[35,7884,7885],{},"Portfolio performance evaluation uses three families of metrics: return metrics, risk metrics, and risk-adjusted return metrics that combine the two.",[80,7887,7888,7901],{},[83,7889,7890],{},[86,7891,7892,7895,7898],{},[89,7893,7894],{},"Metric family",[89,7896,7897],{},"What it answers",[89,7899,7900],{},"Common measures",[96,7902,7903,7914,7925],{},[86,7904,7905,7908,7911],{},[101,7906,7907],{},"Return",[101,7909,7910],{},"How much did the portfolio make?",[101,7912,7913],{},"Simple return, time-weighted return, money-weighted return, alpha",[86,7915,7916,7919,7922],{},[101,7917,7918],{},"Risk",[101,7920,7921],{},"How much uncertainty or loss did it carry?",[101,7923,7924],{},"Standard deviation, downside risk deviation, beta, maximum drawdown",[86,7926,7927,7930,7933],{},[101,7928,7929],{},"Risk-adjusted return",[101,7931,7932],{},"Was the return worth the risk?",[101,7934,7935],{},"Sharpe ratio, Treynor ratio, Sortino ratio",[35,7937,7938],{},"No single number covers all three, so a useful evaluation quotes at least one metric from each family over the same period.",[39,7940,7942],{"id":7941},"how-do-you-measure-portfolio-return","How do you measure portfolio return?",[35,7944,7945],{},"Portfolio return is measured by expressing the portfolio's gain, including price appreciation and income such as dividends and interest, as a percentage of the capital invested. Three methods are in common use and they differ in how they handle deposits and withdrawals.",[140,7947,7949],{"id":7948},"simple-return-sr","Simple return (SR)",[35,7951,7952],{},"Simple return is the total gain on a portfolio divided by the initial investment, with no adjustment for how long the money was invested or when it arrived.",[10,7954,12,7955,12,7958,12,7961],{},[14,7956],{"srcSet":7957,"type":17},"/blog_images/portfolio-performance-evaluation/simple-return-formula.avif",[14,7959],{"srcSet":7960,"type":21},"/blog_images/portfolio-performance-evaluation/simple-return-formula.webp",[23,7962],{"alt":7963,"src":7964,"style":7965,"width":7966,"height":7967,"decoding":30,"fetchPriority":31},"Simple return formula","/blog_images/portfolio-performance-evaluation/simple-return-formula.png","max-width:100%;width:508px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",508,84,[2246,7969,7971],{"className":2248,"code":7970,"language":2250,"meta":400,"style":400},"Simple Return = Total Gain / Initial Investment\n",[2252,7972,7973],{"__ignoreMap":400},[2255,7974,7975],{"class":2257,"line":2258},[2255,7976,7970],{},[35,7978,7979],{},"Total gain includes capital appreciation plus distributions received, such as dividends and interest. Simple return is easy to compute and easy to distort: a deposit made late in the period inflates the denominator without having had time to earn anything, so the reported return falls even though nothing changed.",[140,7981,6503],{"id":7982},"time-weighted-return-twr",[35,7984,7985,7987],{},[219,7986,3915],{"href":3914}," splits the period into sub-periods at every cash flow, calculates each sub-period's return separately, and chains them together so each sub-period counts equally regardless of the balance at the time.",[10,7989,12,7990,12,7992,12,7994],{},[14,7991],{"srcSet":6535,"type":17},[14,7993],{"srcSet":6538,"type":21},[23,7995],{"alt":6530,"src":6541,"style":6542,"width":6543,"height":6544,"decoding":30,"fetchPriority":31},[2246,7997,7999],{"className":2248,"code":7998,"language":2250,"meta":400,"style":400},"R_k = (P_k+1 - (P_k + C_k)) / (P_k + C_k)\n\nTWR = [(1 + R_1) x (1 + R_2) x ... x (1 + R_n)] - 1\n",[2252,8000,8001,8006,8010],{"__ignoreMap":400},[2255,8002,8003],{"class":2257,"line":2258},[2255,8004,8005],{},"R_k = (P_k+1 - (P_k + C_k)) / (P_k + C_k)\n",[2255,8007,8008],{"class":2257,"line":404},[2255,8009,3035],{"emptyLinePlaceholder":430},[2255,8011,8012],{"class":2257,"line":401},[2255,8013,8014],{},"TWR = [(1 + R_1) x (1 + R_2) x ... x (1 + R_n)] - 1\n",[35,8016,8017,8020,8021,8024],{},[2252,8018,8019],{},"P_k"," is the portfolio value at time k and ",[2252,8022,8023],{},"C_k"," is the cash deposited or withdrawn at time k. Because cash flows only set the sub-period boundaries and never enter the returns, time-weighted return measures how the investments performed rather than when money arrived, which is why it is the reporting standard for funds and managers.",[140,8026,6590],{"id":8027},"money-weighted-return-mwr",[35,8029,8030,8032],{},[219,8031,3940],{"href":3939}," is the single rate of return that equates the portfolio's starting value to the discounted value of every subsequent cash flow plus the discounted terminal value, so it counts both the size and the timing of contributions.",[10,8034,12,8035,12,8037,12,8039],{},[14,8036],{"srcSet":6600,"type":17},[14,8038],{"srcSet":6603,"type":21},[23,8040],{"alt":6595,"src":6606,"style":4549,"width":28,"height":6607,"decoding":30,"fetchPriority":31},[2246,8042,8043],{"className":2248,"code":7100,"language":2250,"meta":400,"style":400},[2252,8044,8045],{"__ignoreMap":400},[2255,8046,8047],{"class":2257,"line":2258},[2255,8048,7100],{},[35,8050,8051,7089,8053,8055,8056,8058],{},[2252,8052,7088],{},[2252,8054,7092],{}," the value at time N, and ",[2252,8057,7096],{}," the net cash flow during period k. Money-weighted return is identical to the internal rate of return, and because a larger balance carries more weight, a big deposit made just before a decline lowers the figure, as it lowered the investor's outcome.",[35,8060,8061],{},"Keeping these three figures current by hand means revaluing the portfolio at every deposit, withdrawal and dividend date. Portseido calculates simple return, time-weighted return and money-weighted return from your transaction history automatically, across brokers and currencies.",[39,8063,8065],{"id":8064},"how-do-you-measure-excess-return-with-alpha","How do you measure excess return with alpha?",[35,8067,8068],{},"Alpha measures the return a portfolio earned above what the risk it took should have produced, using the capital asset pricing model (CAPM) to define what was expected.",[10,8070,12,8071,12,8074,12,8077],{},[14,8072],{"srcSet":8073,"type":17},"/blog_images/portfolio-performance-evaluation/alpha-formula.avif",[14,8075],{"srcSet":8076,"type":21},"/blog_images/portfolio-performance-evaluation/alpha-formula.webp",[23,8078],{"alt":8079,"src":8080,"style":8081,"width":8082,"height":8083,"decoding":30,"fetchPriority":31},"Alpha formula","/blog_images/portfolio-performance-evaluation/alpha-formula.png","max-width:100%;width:424px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",424,193,[2246,8085,8087],{"className":2248,"code":8086,"language":2250,"meta":400,"style":400},"alpha = R_p - (R_rf + (Beta x (R_m - R_rf)))\n",[2252,8088,8089],{"__ignoreMap":400},[2255,8090,8091],{"class":2257,"line":2258},[2255,8092,8086],{},[35,8094,8095,8098,8099,8102,8103,8106,8107,8110,8111,8113,8114,733],{},[2252,8096,8097],{},"R_p"," is the portfolio return, ",[2252,8100,8101],{},"R_rf"," the risk-free rate, ",[2252,8104,8105],{},"R_m"," the benchmark return, and ",[2252,8108,8109],{},"Beta"," the portfolio's sensitivity to that benchmark. A positive ",[219,8112,3731],{"href":3730}," means the portfolio beat the return its market exposure predicted; a negative alpha means it fell short. Alpha is only as meaningful as the benchmark chosen for ",[2252,8115,8105],{},[39,8117,8119],{"id":8118},"how-do-you-measure-portfolio-risk","How do you measure portfolio risk?",[35,8121,8122],{},"Portfolio risk is measured either as the variability of returns, as sensitivity to the market, or as the depth of actual losses, and the three definitions can disagree about which portfolio is riskier.",[140,8124,8126],{"id":8125},"standard-deviation-of-returns","Standard deviation of returns",[35,8128,8129],{},"The standard deviation of returns measures how widely a portfolio's periodic returns scatter around their average, and is the most common definition of investment risk.",[10,8131,12,8132,12,8135,12,8138],{},[14,8133],{"srcSet":8134,"type":17},"/blog_images/portfolio-performance-evaluation/return-standard-deviation-formula.avif",[14,8136],{"srcSet":8137,"type":21},"/blog_images/portfolio-performance-evaluation/return-standard-deviation-formula.webp",[23,8139],{"alt":8140,"src":8141,"style":8142,"width":8143,"height":8144,"decoding":30,"fetchPriority":31},"Return standard deviation formula","/blog_images/portfolio-performance-evaluation/return-standard-deviation-formula.png","max-width:100%;width:475px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",475,247,[2246,8146,8148],{"className":2248,"code":8147,"language":2250,"meta":400,"style":400},"Standard Deviation = sqrt( Sum over i=1..n of (r_i - r_avg)^2 / (n - 1) )\n",[2252,8149,8150],{"__ignoreMap":400},[2255,8151,8152],{"class":2257,"line":2258},[2255,8153,8147],{},[35,8155,8156,8159,8160,8163,8164,8167],{},[2252,8157,8158],{},"r_i"," is the portfolio return in period i, ",[2252,8161,8162],{},"r_avg"," the average portfolio return, and ",[2252,8165,8166],{},"n"," the number of periods. The rationale is that between two investments with the same average return, the more predictable one is less risky. Stock A returning 9%, 10% and 11% and stock B returning 0%, 10% and 20% both average 10%, but stock B is treated as riskier.",[140,8169,8171],{"id":8170},"downside-risk-deviation","Downside risk deviation",[35,8173,8174],{},"Downside risk deviation measures the variability of only those returns that fall below a target, so unusually good periods are not counted as risk.",[10,8176,12,8177,12,8180,12,8183],{},[14,8178],{"srcSet":8179,"type":17},"/blog_images/portfolio-performance-evaluation/downside-risk-deviation-formula.avif",[14,8181],{"srcSet":8182,"type":21},"/blog_images/portfolio-performance-evaluation/downside-risk-deviation-formula.webp",[23,8184],{"alt":8185,"src":8186,"style":8187,"width":8188,"height":8189,"decoding":30,"fetchPriority":31},"Downside risk deviation formula","/blog_images/portfolio-performance-evaluation/downside-risk-deviation-formula.png","max-width:100%;width:602px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",602,251,[2246,8191,8193],{"className":2248,"code":8192,"language":2250,"meta":400,"style":400},"Downside Risk Deviation = sqrt( Sum over i=1..n of (Min(0, r_i - r_target))^2 / n )\n",[2252,8194,8195],{"__ignoreMap":400},[2255,8196,8197],{"class":2257,"line":2258},[2255,8198,8192],{},[35,8200,8201,8159,8203,8206,8207,8209,8210,733],{},[2252,8202,8158],{},[2252,8204,8205],{},"r_target"," the minimum acceptable return, and ",[2252,8208,8166],{}," the number of periods. Standard deviation penalises a large positive month as heavily as a large negative one; downside risk deviation corrects that by keeping only shortfalls against ",[2252,8211,8205],{},[140,8213,8109],{"id":5542},[35,8215,8216],{},"Beta measures how much a portfolio or stock moves relative to the market, so it captures market risk rather than total variability.",[10,8218,12,8219,12,8222,12,8225],{},[14,8220],{"srcSet":8221,"type":17},"/blog_images/what-is-beta/beta-formula.avif",[14,8223],{"srcSet":8224,"type":21},"/blog_images/what-is-beta/beta-formula.webp",[23,8226],{"alt":8227,"src":8228,"style":8229,"width":8230,"height":8231,"loading":670,"decoding":30},"Beta formula","/blog_images/what-is-beta/beta-formula.png","max-width:100%; width:400px; height:auto;aspect-ratio:'attr(width) / attr(height)'",400,94,[2246,8233,8235],{"className":2248,"code":8234,"language":2250,"meta":400,"style":400},"Beta = Covariance(R_s, R_m) / Variance(R_m)\n",[2252,8236,8237],{"__ignoreMap":400},[2255,8238,8239],{"class":2257,"line":2258},[2255,8240,8234],{},[35,8242,8243,8246,8247,8249,8250,8252],{},[2252,8244,8245],{},"R_s"," is the return of the stock or portfolio and ",[2252,8248,8105],{}," the return of the market. A ",[219,8251,5542],{"href":2971}," of 2 means that when the benchmark moves 1%, the investment has historically moved about 2% in the same direction. Beta says nothing about risks unrelated to the market, so a low beta is not automatically safe.",[140,8254,8256],{"id":8255},"maximum-drawdown","Maximum drawdown",[35,8258,8259],{},"Maximum drawdown is the largest peak-to-trough fall in a portfolio's value over a period, expressed as a percentage of the peak.",[10,8261,12,8262,12,8264,12,8266],{},[14,8263],{"srcSet":3010,"type":17},[14,8265],{"srcSet":3013,"type":21},[23,8267],{"alt":3016,"src":3017,"style":3018,"width":3019,"height":3020,"decoding":30,"fetchPriority":31},[2246,8269,8271],{"className":2248,"code":8270,"language":2250,"meta":400,"style":400},"Max Drawdown (%) = (Trough Value - Peak Value) / Peak Value\n",[2252,8272,8273],{"__ignoreMap":400},[2255,8274,8275],{"class":2257,"line":2258},[2255,8276,8270],{},[35,8278,8279,8280,8282],{},"Many investors define risk as the permanent loss of capital, and ",[219,8281,4077],{"href":1218}," is the metric closest to that definition. It also states the loss an investor would have had to sit through without selling.",[39,8284,8286],{"id":8285},"what-are-the-limits-of-portfolio-risk-metrics","What are the limits of portfolio risk metrics?",[35,8288,8289],{},"Portfolio risk metrics such as standard deviation, downside risk deviation, beta and maximum drawdown are all backward-looking, so they report the risk a portfolio carried in the past rather than the risk it carries today.",[44,8291,8292,8298,8304],{},[47,8293,8294,8297],{},[287,8295,8296],{},"They lag."," A portfolio that has just added leverage is riskier immediately, but its standard deviation, beta and drawdown will not show it for months.",[47,8299,8300,8303],{},[287,8301,8302],{},"They depend on the benchmark."," Beta and alpha compare a portfolio to a chosen index, and an ill-matched index makes both figures meaningless.",[47,8305,8306,8309],{},[287,8307,8308],{},"They miss what is not in the price history."," Liquidity risk, concentration and rare severe events leave no trace in past volatility, and a short, calm measurement window makes almost any portfolio look safe.",[39,8311,8313],{"id":8312},"how-do-you-measure-risk-adjusted-return","How do you measure risk-adjusted return?",[35,8315,8316],{},"Risk-adjusted return is measured by dividing a portfolio's return above the risk-free rate by a measure of the risk it took, producing a figure that can be compared across portfolios of different volatility.",[140,8318,5556],{"id":8319},"sharpe-ratio",[35,8321,7109,8322,8324],{},[219,8323,5556],{"href":1976}," divides a portfolio's return above the risk-free rate by the standard deviation of its returns, so it measures excess return per unit of total volatility.",[10,8326,12,8327,12,8330,12,8333],{},[14,8328],{"srcSet":8329,"type":17},"/blog_images/portfolio-performance-evaluation/sharpe-ratio-formula.avif",[14,8331],{"srcSet":8332,"type":21},"/blog_images/portfolio-performance-evaluation/sharpe-ratio-formula.webp",[23,8334],{"alt":8335,"src":8336,"style":8337,"width":8338,"height":8339,"decoding":30,"fetchPriority":31},"Sharpe ratio formula","/blog_images/portfolio-performance-evaluation/sharpe-ratio-formula.png","max-width:100%;width:426px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",426,210,[2246,8341,8343],{"className":2248,"code":8342,"language":2250,"meta":400,"style":400},"Sharpe Ratio = (r_p - r_rf) / sigma_p\n",[2252,8344,8345],{"__ignoreMap":400},[2255,8346,8347],{"class":2257,"line":2258},[2255,8348,8342],{},[35,8350,8351,8098,8354,8357,8358,8361],{},[2252,8352,8353],{},"r_p",[2252,8355,8356],{},"r_rf"," the risk-free rate, and ",[2252,8359,8360],{},"sigma_p"," the standard deviation of the portfolio's returns. A higher Sharpe ratio means more return per unit of volatility. Because it uses total volatility, it suits a standalone portfolio, which is what its owner actually experiences.",[140,8363,5561],{"id":8364},"treynor-ratio",[35,8366,7109,8367,8369],{},[219,8368,5561],{"href":5560}," divides a portfolio's return above the risk-free rate by its beta, so it measures excess return per unit of market risk rather than per unit of total volatility.",[10,8371,12,8372,12,8375,12,8378],{},[14,8373],{"srcSet":8374,"type":17},"/blog_images/treynor-ratio/treynor-ratio-formula.avif",[14,8376],{"srcSet":8377,"type":21},"/blog_images/treynor-ratio/treynor-ratio-formula.webp",[23,8379],{"alt":8380,"src":8381,"style":6425,"width":8382,"height":8383,"decoding":30},"Treynor ratio formula","/blog_images/treynor-ratio/treynor-ratio-formula.png",596,367,[2246,8385,8387],{"className":2248,"code":8386,"language":2250,"meta":400,"style":400},"Treynor Ratio = (r_p - r_f) / Beta_p\n",[2252,8388,8389],{"__ignoreMap":400},[2255,8390,8391],{"class":2257,"line":2258},[2255,8392,8386],{},[35,8394,8395,8098,8397,8357,8400,8403],{},[2252,8396,8353],{},[2252,8398,8399],{},"r_f",[2252,8401,8402],{},"Beta_p"," the portfolio's beta. The Treynor ratio suits a holding inside an already diversified portfolio, where diversification has removed company-specific risk and market risk is the exposure that remains.",[140,8405,8407],{"id":8406},"sortino-ratio","Sortino ratio",[35,8409,8410],{},"The Sortino ratio divides a portfolio's return above the risk-free rate by its downside risk deviation, so upside volatility is not treated as risk.",[10,8412,12,8413,12,8416,12,8419],{},[14,8414],{"srcSet":8415,"type":17},"/blog_images/portfolio-performance-evaluation/sortino-ratio-formula.avif",[14,8417],{"srcSet":8418,"type":21},"/blog_images/portfolio-performance-evaluation/sortino-ratio-formula.webp",[23,8420],{"alt":8421,"src":8422,"style":8423,"width":8424,"height":8425,"decoding":30,"fetchPriority":31},"Sortino ratio formula","/blog_images/portfolio-performance-evaluation/sortino-ratio-formula.png","max-width:100%;width:496px;height:auto;aspect-ratio: 'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",496,160,[2246,8427,8429],{"className":2248,"code":8428,"language":2250,"meta":400,"style":400},"Sortino Ratio = (r_p - r_rf) / Downside Risk Deviation\n",[2252,8430,8431],{"__ignoreMap":400},[2255,8432,8433],{"class":2257,"line":2258},[2255,8434,8428],{},[35,8436,8437,8439,8440,8442],{},[2252,8438,8353],{}," is the portfolio return and ",[2252,8441,8356],{}," the risk-free rate, while downside risk deviation counts only returns that fell below a target. The Sortino ratio is the fairer measure for strategies with deliberately lopsided return profiles, where large positive periods would otherwise be scored as risk.",[39,8444,8446],{"id":8445},"how-often-should-you-evaluate-portfolio-performance","How often should you evaluate portfolio performance?",[35,8448,8449],{},"Review portfolio performance quarterly or annually, and judge results over periods of at least three to five years, because shorter windows report market conditions more than they report decisions.",[35,8451,8452,8453,8457],{},"Checking daily invites reaction to noise, so the practical compromise is to record continuously and evaluate on a schedule. Many investors do the recording in a ",[219,8454,8456],{"href":8455},"/blog/stock-tracking-spreadsheet/","stock tracking spreadsheet",", which works until the number of accounts, currencies and dividend dates makes the maintenance heavier than the insight.",[39,8459,320],{"id":319},[140,8461,8463],{"id":8462},"which-single-metric-best-summarises-portfolio-performance","Which single metric best summarises portfolio performance?",[35,8465,8466],{},"No single metric summarises portfolio performance, because return and risk are separate dimensions. The closest to a summary is a risk-adjusted measure such as the Sharpe ratio, which combines both, but it says nothing about drawdown or how the return was earned. A minimum honest report is one return figure, one risk figure and one benchmark comparison.",[140,8468,8470],{"id":8469},"do-i-need-a-benchmark-to-evaluate-portfolio-performance","Do I need a benchmark to evaluate portfolio performance?",[35,8472,8473],{},"Yes, for return and risk-adjusted metrics to mean anything. A 12% return is good or poor only relative to what the same money could have earned elsewhere over the same period. Alpha and beta require a benchmark by definition, and even simple return needs one before you can say whether the result was skill or a rising market.",[140,8475,8477],{"id":8476},"should-i-evaluate-individual-holdings-or-just-the-whole-portfolio","Should I evaluate individual holdings or just the whole portfolio?",[35,8479,8480],{},"Evaluate both, for different reasons. Portfolio-level metrics tell you whether the strategy is working, while position-level returns and weights tell you where the result came from. A portfolio can beat its benchmark on the strength of one holding, which is useful to know before concluding the approach as a whole is sound.",[39,8482,8484],{"id":8483},"how-to-evaluate-portfolio-performance-in-portseido","How to evaluate portfolio performance in Portseido",[35,8486,8487],{},"Portseido is a portfolio tracker that handles the record-keeping side of portfolio performance evaluation. It consolidates holdings across brokers and currencies, calculates simple return, time-weighted return and money-weighted return, tracks cost basis, dividends and yield on cost, and reports asset allocation and drawdown. It also benchmarks a portfolio against indices and ETFs, the comparison that makes any return figure interpretable.",[35,8489,8490,8491],{},"Portseido tracks and reports on your portfolio; it does not calculate every academic risk metric, and it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,8492,363],{"href":361,"rel":8493},[240],[2524,8495,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":8497},[8498,8499,8500,8501,8502,8507,8508,8514,8515,8520,8521,8526],{"id":41,"depth":404,"text":42},{"id":7861,"depth":404,"text":7862},{"id":7871,"depth":404,"text":7872},{"id":7881,"depth":404,"text":7882},{"id":7941,"depth":404,"text":7942,"children":8503},[8504,8505,8506],{"id":7948,"depth":401,"text":7949},{"id":7982,"depth":401,"text":6503},{"id":8027,"depth":401,"text":6590},{"id":8064,"depth":404,"text":8065},{"id":8118,"depth":404,"text":8119,"children":8509},[8510,8511,8512,8513],{"id":8125,"depth":401,"text":8126},{"id":8170,"depth":401,"text":8171},{"id":5542,"depth":401,"text":8109},{"id":8255,"depth":401,"text":8256},{"id":8285,"depth":404,"text":8286},{"id":8312,"depth":404,"text":8313,"children":8516},[8517,8518,8519],{"id":8319,"depth":401,"text":5556},{"id":8364,"depth":401,"text":5561},{"id":8406,"depth":401,"text":8407},{"id":8445,"depth":404,"text":8446},{"id":319,"depth":404,"text":320,"children":8522},[8523,8524,8525],{"id":8462,"depth":401,"text":8463},{"id":8469,"depth":401,"text":8470},{"id":8476,"depth":401,"text":8477},{"id":8483,"depth":404,"text":8484},"Portfolio performance evaluation measures a portfolio on three fronts: return, risk and risk-adjusted return. Here are the metrics for each and how to read them.",{},"/blog/portfolio-performance-evaluation","2024-04-24",{"title":7821,"description":8527},"blog/portfolio-performance-evaluation","ceY6rn75lDdUgGm6gvNLkns2ZB7-b24AHgZ1oYf8jNM",{"id":8535,"title":8536,"body":8537,"description":8954,"extension":428,"meta":8955,"navigation":430,"path":8956,"publishedAt":8957,"seo":8958,"seo_description":434,"seo_title":434,"social_image":8550,"stem":8959,"updatedAt":436,"__hash__":8960},"blog/blog/portfolio-turnover.md","Portfolio Turnover - What is it? How to calculate?",{"type":7,"value":8538,"toc":8933},[8539,8552,8555,8557,8574,8578,8581,8590,8593,8597,8600,8609,8613,8626,8629,8646,8649,8653,8656,8659,8687,8690,8693,8697,8700,8703,8706,8709,8712,8719,8723,8726,8787,8800,8803,8807,8810,8842,8845,8847,8851,8854,8858,8861,8865,8868,8872,8875,8879,8882,8888,8892,8910,8914,8931],[10,8540,12,8541,12,8544,12,8547],{},[14,8542],{"srcSet":8543,"type":17},"/blog_images/portfolio-turnover/portfolio-turnover-cover.avif",[14,8545],{"srcSet":8546,"type":21},"/blog_images/portfolio-turnover/portfolio-turnover-cover.webp",[23,8548],{"alt":8549,"src":8550,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":8551},"What is Portfolio Turnover?","/blog_images/portfolio-turnover/portfolio-turnover-cover.png",[33],[35,8553,8554],{},"Portfolio turnover is the measure of how much trading a portfolio actually did. It is quoted by every mutual fund and ETF, it is rarely calculated by individual investors, and it is one of the more reliable predictors of what a portfolio will cost to run. This guide covers what portfolio turnover is, how it is calculated, what it costs you, and what a reasonable ratio looks like.",[39,8556,42],{"id":41},[44,8558,8559,8562,8565,8568,8571],{},[47,8560,8561],{},"Portfolio turnover is a metric that measures how frequently the investments within a portfolio are bought and sold over a period, usually 12 months.",[47,8563,8564],{},"Portfolio turnover is calculated as the lesser of total purchases or total sales during the period, divided by the average value of the portfolio over that same period.",[47,8566,8567],{},"A portfolio turnover of 100% means the portfolio traded an amount equal to its entire average value during the period; 0% means nothing was bought or sold.",[47,8569,8570],{},"High portfolio turnover raises costs in two ways: transaction fees and spreads on every trade, and capital gains tax realised earlier than it needed to be.",[47,8572,8573],{},"Long-term investors typically run portfolio turnover below 10%, while active traders can exceed 100% in a single year.",[39,8575,8577],{"id":8576},"what-is-portfolio-turnover","What is portfolio turnover?",[35,8579,8580],{},"Portfolio turnover is a metric that measures how frequently the investments within a portfolio are bought and sold over a specific period, expressed as a percentage of the portfolio's average value. It is usually measured on a 12-month basis.",[35,8582,8583,8584,8589],{},"A high turnover rate indicates frequent trading activity, while a low turnover rate implies a more passive investment approach. A ",[219,8585,8588],{"href":8586,"rel":8587},"https://lifemathmoney.com/long-term-investing-building-an-equity-portfolio/",[240],"long-term investor"," will usually have far lower portfolio turnover than a day trader does.",[35,8591,8592],{},"Portfolio turnover is a measure of activity, not of skill. A 5% turnover ratio does not by itself mean a portfolio performed well, and a 150% ratio does not mean it performed badly. What turnover reliably predicts is cost.",[39,8594,8596],{"id":8595},"how-do-you-calculate-portfolio-turnover","How do you calculate portfolio turnover?",[35,8598,8599],{},"Portfolio turnover is calculated by taking the lesser of the total value of assets bought or the total value of assets sold during a period, and dividing it by the average value of the portfolio over that same period.",[2246,8601,8603],{"className":2248,"code":8602,"language":2250,"meta":400,"style":400},"Portfolio Turnover = min(Total Purchases, Total Sales) / Average Portfolio Value\n",[2252,8604,8605],{"__ignoreMap":400},[2255,8606,8607],{"class":2257,"line":2258},[2255,8608,8602],{},[140,8610,8612],{"id":8611},"portfolio-turnover-formula","Portfolio Turnover Formula:",[10,8614,12,8615,12,8618,12,8621],{},[14,8616],{"srcSet":8617,"type":17},"/blog_images/portfolio-turnover/portfolio-turnover-formula.avif",[14,8619],{"srcSet":8620,"type":21},"/blog_images/portfolio-turnover/portfolio-turnover-formula.webp",[23,8622],{"alt":8623,"src":8624,"style":6542,"width":6543,"height":8625,"decoding":30,"fetchPriority":31},"Portfolio Turnover Formula","/blog_images/portfolio-turnover/portfolio-turnover-formula.png",90,[35,8627,8628],{},"Where:",[44,8630,8631,8640],{},[47,8632,8633,8636,8637,733],{},[287,8634,8635],{},"Total Value of Assets Bought or Sold"," = the total value of assets bought, or the total value of assets sold, within the period — ",[287,8638,8639],{},"whichever is less",[47,8641,8642,8645],{},[287,8643,8644],{},"Average Portfolio Value"," = the average market value of the portfolio across the period, commonly the average of monthly values, or simply the average of the starting and ending values for a rough figure.",[35,8647,8648],{},"Taking the lesser of purchases and sales is the point of the convention, and it is what stops the ratio from misreading growth as trading. An investor who deposits new cash and buys with it has made purchases but no sales, so the lesser figure is zero and turnover is zero — which is correct, because nothing was actually turned over. The same logic keeps a large withdrawal from inflating the ratio.",[39,8650,8652],{"id":8651},"portfolio-turnover-calculation-example","Portfolio turnover calculation example",[35,8654,8655],{},"A portfolio that bought $60,000 and sold $45,000 of assets over a year, while averaging $200,000 in value, has a portfolio turnover of 22.5%.",[35,8657,8658],{},"Work through the portfolio turnover formula, which is the lesser of purchases or sales divided by the average portfolio value:",[2246,8660,8662],{"className":2248,"code":8661,"language":2250,"meta":400,"style":400},"Average Portfolio Value = ($180,000 start + $220,000 end) / 2 = $200,000\n\nmin(Purchases $60,000, Sales $45,000) = $45,000\n\nPortfolio Turnover = $45,000 / $200,000 = 22.5%\n",[2252,8663,8664,8669,8673,8678,8682],{"__ignoreMap":400},[2255,8665,8666],{"class":2257,"line":2258},[2255,8667,8668],{},"Average Portfolio Value = ($180,000 start + $220,000 end) / 2 = $200,000\n",[2255,8670,8671],{"class":2257,"line":404},[2255,8672,3035],{"emptyLinePlaceholder":430},[2255,8674,8675],{"class":2257,"line":401},[2255,8676,8677],{},"min(Purchases $60,000, Sales $45,000) = $45,000\n",[2255,8679,8680],{"class":2257,"line":5870},[2255,8681,3035],{"emptyLinePlaceholder":430},[2255,8683,8684],{"class":2257,"line":5876},[2255,8685,8686],{},"Portfolio Turnover = $45,000 / $200,000 = 22.5%\n",[35,8688,8689],{},"A 22.5% turnover means roughly a fifth of the portfolio was replaced during the year, which implies an average holding period of a little over four years.",[35,8691,8692],{},"Compare that with a buy-and-hold investor who put $20,000 of new savings to work during the year and sold nothing. Purchases are $20,000 and sales are $0, so the lesser figure is $0 and portfolio turnover is 0%, no matter how much was deposited.",[39,8694,8696],{"id":8695},"what-does-portfolio-turnover-mean-to-investors","What does portfolio turnover mean to investors?",[35,8698,8699],{},"Portfolio turnover matters to investors because every unit of turnover carries a cost, in transaction fees and in tax paid earlier than necessary. The higher the portfolio turnover, the more of the return is consumed before it reaches you.",[35,8701,8702],{},"The transaction cost side is obvious: every trade carries a commission, a bid-ask spread and sometimes exchange or currency fees. Trade twice as often and you pay those twice as often.",[35,8704,8705],{},"The tax side is less visible and usually larger. Realising a gain every period, instead of deferring it, means the tax is paid out of capital that would otherwise have kept compounding. Charlie Munger illustrated the effect:",[35,8707,8708],{},"\"If you're going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum. In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15%-or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening.\"",[35,8710,8711],{},"How much of a difference does 3.5% a year make? Starting with $10,000 and compounding at 9.75% for 30 years — the after-tax rate when the tax is paid annually — leaves $162,981. Compounding at 15% and paying the 35% tax once at the end leaves $430,377. That is 2.64 times as much money, from the same investment and the same tax rate, purely because the tax was deferred.",[35,8713,8714,8715,8718],{},"This is why turnover interacts with ",[219,8716,8717],{"href":6324},"how cost basis is tracked",": the method you use to decide which shares were sold determines how large a gain each sale realises, and therefore how expensive a given level of turnover turns out to be.",[39,8720,8722],{"id":8721},"whats-a-good-portfolio-turnover-ratio","What's a good portfolio turnover ratio?",[35,8724,8725],{},"A good portfolio turnover ratio for a long-term investor is under 10%, and for many buy-and-hold investors it is close to 0%. Turnover should be judged against the strategy: given the same strategy and return profile, the portfolio with lower turnover is preferable because its transaction costs and tax drag are lower.",[80,8727,8728,8741],{},[83,8729,8730],{},[86,8731,8732,8735,8738],{},[89,8733,8734],{},"Turnover ratio",[89,8736,8737],{},"What it implies",[89,8739,8740],{},"Typical of",[96,8742,8743,8754,8765,8776],{},[86,8744,8745,8748,8751],{},[101,8746,8747],{},"0% - 10%",[101,8749,8750],{},"Average holding period of a decade or more",[101,8752,8753],{},"Long-term buy-and-hold investors, index funds",[86,8755,8756,8759,8762],{},[101,8757,8758],{},"10% - 50%",[101,8760,8761],{},"Positions held roughly 2 to 10 years",[101,8763,8764],{},"Patient active managers, periodic rebalancers",[86,8766,8767,8770,8773],{},[101,8768,8769],{},"50% - 100%",[101,8771,8772],{},"Positions held around 1 to 2 years",[101,8774,8775],{},"Actively managed funds",[86,8777,8778,8781,8784],{},[101,8779,8780],{},"Over 100%",[101,8782,8783],{},"The whole portfolio replaced within a year",[101,8785,8786],{},"Short-term and tactical trading strategies",[35,8788,8789,8790,727,8795,733],{},"Terry Smith's Fundsmith is a well-known example of a deliberately low-turnover fund, with turnover rates most of the time between ",[219,8791,8794],{"href":8792,"rel":8793},"https://www.linkedin.com/pulse/terry-smiths-philosophy-giuliano-mana/",[240],"2-5%",[219,8796,8799],{"href":8797,"rel":8798},"https://www.fundsmith.co.uk/media/31plodnq/2023-fef-annual-letter-to-shareholders.pdf",[240],"11.1% in 2023",[35,8801,8802],{},"Charlie Munger famously stated, \"Investing is where you find a few great companies and then sit on your ass,\" highlighting the value of patience and conviction in long-term investing. Terry Smith states a similar philosophy — \"Buy good companies. Don't overpay. Do nothing.\" — and is committed enough to the \"Do nothing\" part that he tracks and discloses the fund's portfolio turnover every year.",[39,8804,8806],{"id":8805},"what-raises-portfolio-turnover-without-you-deciding-to-trade","What raises portfolio turnover without you deciding to trade?",[35,8808,8809],{},"Portfolio turnover rises from routine portfolio maintenance as well as from deliberate trading, and rebalancing is the most common source. Four causes account for most unintended turnover.",[178,8811,8812,8821,8830,8836],{},[47,8813,8814,8817,8818,8820],{},[287,8815,8816],{},"Rebalancing."," Returning a portfolio to its target ",[219,8819,248],{"href":247}," means selling what has grown and buying what has lagged, which is turnover by definition.",[47,8822,8823,8826,8827,8829],{},[287,8824,8825],{},"Position trimming."," Cutting a holding back when its ",[219,8828,4191],{"href":1762}," drifts past a limit produces sales in the strongest positions, which are also the ones carrying the largest unrealised gains.",[47,8831,8832,8835],{},[287,8833,8834],{},"Corporate actions."," Mergers, buyouts and index reconstitutions force sales you did not choose.",[47,8837,8838,8841],{},[287,8839,8840],{},"Fund switching."," Moving from one fund to a cheaper equivalent is a single decision that turns over the entire position at once.",[35,8843,8844],{},"None of these is a reason to avoid rebalancing, which manages real risk. The point is to count the cost: rebalancing annually rather than quarterly achieves most of the same risk control at a fraction of the turnover.",[39,8846,320],{"id":319},[140,8848,8850],{"id":8849},"what-does-a-100-portfolio-turnover-ratio-mean","What does a 100% portfolio turnover ratio mean?",[35,8852,8853],{},"A portfolio turnover ratio of 100% means the portfolio bought and sold an amount equal to its entire average value during the period. It does not mean every single holding was replaced — a small number of positions traded repeatedly can produce the same figure. As a rough guide, 100% turnover implies an average holding period of about one year.",[140,8855,8857],{"id":8856},"where-can-i-find-a-funds-portfolio-turnover-ratio","Where can I find a fund's portfolio turnover ratio?",[35,8859,8860],{},"A fund's portfolio turnover ratio is disclosed in its prospectus and annual report, usually in the financial highlights table alongside the expense ratio. It is worth reading next to the expense ratio rather than instead of it, because turnover-driven trading costs and tax are real expenses that the stated expense ratio does not include.",[140,8862,8864],{"id":8863},"is-high-portfolio-turnover-always-bad","Is high portfolio turnover always bad?",[35,8866,8867],{},"No. High portfolio turnover is a cost, not a mistake, and some strategies genuinely require it — short-term trading, tactical allocation and certain arbitrage approaches cannot work without it. The question is whether the strategy earns enough extra return to cover the fees, spreads and earlier tax that the turnover creates. Most do not.",[140,8869,8871],{"id":8870},"does-portfolio-turnover-matter-inside-a-tax-sheltered-account","Does portfolio turnover matter inside a tax-sheltered account?",[35,8873,8874],{},"Portfolio turnover matters less inside a tax-sheltered account such as an IRA or ISA, because gains are not taxed as they are realised, removing the larger of the two costs. Transaction fees and bid-ask spreads still apply on every trade, so high turnover still erodes returns — just more slowly than in a taxable account.",[39,8876,8878],{"id":8877},"how-to-track-your-trading-activity-in-portseido","How to track your trading activity in Portseido",[35,8880,8881],{},"Portseido keeps the transaction record that a portfolio turnover calculation is built from. It consolidates holdings across multiple brokers and multiple currencies into one portfolio, stores every buy and sell with its date and value, tracks cost basis so you can see the gain each sale realises, and reports dividends, yield on cost, allocation and time-weighted and money-weighted returns. Transactions can be imported directly from brokers or from a CSV, so the history stays complete without manual entry.",[35,8883,8884,8885],{},"Portseido does not calculate the turnover ratio itself, and it tracks and reports on your portfolio rather than giving buy or sell recommendations. What it gives you is the purchases, sales and portfolio values in one place, which is the part most investors cannot assemble when their accounts are spread across brokers. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,8886,363],{"href":361,"rel":8887},[240],[39,8889,8891],{"id":8890},"great-further-reads","Great further reads:",[44,8893,8894,8902],{},[47,8895,8896,8901],{},[219,8897,8900],{"href":8898,"rel":8899},"https://www.goodreads.com/book/show/55656572-investing-for-growth",[240],"Investing for growth"," by Terry Smith",[47,8903,8904,8909],{},[219,8905,8908],{"href":8906,"rel":8907},"https://www.goodreads.com/book/show/944652.Poor_Charlie_s_Almanack",[240],"Poor Charlie's Almanack"," by Charles T. Munger",[140,8911,8913],{"id":8912},"other-references","Other References:",[44,8915,8916,8924],{},[47,8917,8918,8923],{},[219,8919,8922],{"href":8920,"rel":8921},"https://fs.blog/great-talks/a-lesson-on-worldly-wisdom/",[240],"A Lesson on Elementary Worldly Wisdom As It Relates To Investment Management & Business"," by Charlie Munger",[47,8925,8926],{},[219,8927,8930],{"href":8928,"rel":8929},"https://www.fundsmith.co.uk/documents/",[240],"Fundsmith's letter to shareholders",[2524,8932,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":8934},[8935,8936,8937,8940,8941,8942,8943,8944,8950,8951],{"id":41,"depth":404,"text":42},{"id":8576,"depth":404,"text":8577},{"id":8595,"depth":404,"text":8596,"children":8938},[8939],{"id":8611,"depth":401,"text":8612},{"id":8651,"depth":404,"text":8652},{"id":8695,"depth":404,"text":8696},{"id":8721,"depth":404,"text":8722},{"id":8805,"depth":404,"text":8806},{"id":319,"depth":404,"text":320,"children":8945},[8946,8947,8948,8949],{"id":8849,"depth":401,"text":8850},{"id":8856,"depth":401,"text":8857},{"id":8863,"depth":401,"text":8864},{"id":8870,"depth":401,"text":8871},{"id":8877,"depth":404,"text":8878},{"id":8890,"depth":404,"text":8891,"children":8952},[8953],{"id":8912,"depth":401,"text":8913},"Portfolio turnover measures how much of a portfolio was traded over a period: the lesser of purchases or sales, divided by the portfolio's average value.",{},"/blog/portfolio-turnover","2024-04-04",{"title":8536,"description":8954},"blog/portfolio-turnover","XM3EdeoQ_ZkpUZ5cMariMU1xjK8hdaa5eL0LaakM-ys",{"id":8962,"title":8963,"body":8964,"description":9371,"extension":428,"meta":9372,"navigation":430,"path":9373,"publishedAt":9374,"seo":9375,"seo_description":434,"seo_title":434,"social_image":8977,"stem":9376,"updatedAt":436,"__hash__":9377},"blog/blog/portfolio-weight.md","Portfolio Weight - What is it? How to calculate?",{"type":7,"value":8965,"toc":9351},[8966,8979,8982,8984,9001,9005,9008,9011,9014,9018,9021,9030,9034,9048,9051,9059,9063,9066,9069,9158,9161,9170,9173,9177,9180,9183,9186,9190,9193,9219,9222,9226,9229,9232,9246,9253,9257,9260,9263,9269,9273,9288,9291,9300,9303,9306,9308,9312,9315,9319,9322,9326,9329,9333,9336,9340,9343,9349],[10,8967,12,8968,12,8971,12,8974],{},[14,8969],{"srcSet":8970,"type":17},"/blog_images/portfolio-weight/portfolio-weight-cover.avif",[14,8972],{"srcSet":8973,"type":21},"/blog_images/portfolio-weight/portfolio-weight-cover.webp",[23,8975],{"alt":8976,"src":8977,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":8978},"What is Portfolio Weight?","/blog_images/portfolio-weight/portfolio-weight-cover.png",[33],[35,8980,8981],{},"Portfolio weight is the single number that tells you how much a holding actually matters to your portfolio. A stock that doubles is only good news in proportion to its weight, and a stock that halves only hurts in proportion to it. This guide covers what portfolio weight is, how to calculate it, what weights are reasonable, and why they drift.",[39,8983,42],{"id":41},[44,8985,8986,8989,8992,8995,8998],{},[47,8987,8988],{},"Portfolio weight is the value of one position expressed as a percentage of the total value of the portfolio.",[47,8990,8991],{},"Portfolio weight is calculated by dividing the market value of a position by the total market value of the portfolio, then multiplying by 100.",[47,8993,8994],{},"The portfolio weights of every holding in a portfolio add up to 100%, so raising one holding's weight necessarily lowers the others.",[47,8996,8997],{},"Portfolio weight determines how much a holding's return moves the portfolio: a 5% position that gains 20% adds only 1% to the total portfolio.",[47,8999,9000],{},"Portfolio weights drift as prices move, so a position deliberately sized at 10% can become 20% after a strong run without you ever buying another share.",[39,9002,9004],{"id":9003},"what-is-portfolio-weight","What is portfolio weight?",[35,9006,9007],{},"Portfolio weight is the percentage of a specific position or asset type in an investment portfolio, measured as that position's value divided by the total portfolio value. It indicates the extent of exposure the portfolio has to that particular asset.",[35,9009,9010],{},"Portfolio weight can be measured at any level of grouping. You can calculate the weight of a single stock, of an entire sector, of a currency, of an asset class, or of one broker account within your total holdings. The arithmetic is identical; only the definition of \"the position\" changes.",[35,9012,9013],{},"Portfolio weight matters because it converts a holding's return into portfolio impact. A holding at 40% of a portfolio moves the total twice as hard as one at 20%, regardless of how good either company is.",[39,9015,9017],{"id":9016},"how-do-you-calculate-portfolio-weight","How do you calculate portfolio weight?",[35,9019,9020],{},"Portfolio weight is calculated by dividing the market value of a specific position by the total market value of the entire portfolio, then multiplying by 100 to express it as a percentage.",[2246,9022,9024],{"className":2248,"code":9023,"language":2250,"meta":400,"style":400},"Portfolio Weight = (Asset Position Value / Total Portfolio Value) x 100\n",[2252,9025,9026],{"__ignoreMap":400},[2255,9027,9028],{"class":2257,"line":2258},[2255,9029,9023],{},[140,9031,9033],{"id":9032},"portfolio-weight-formula","Portfolio Weight Formula:",[10,9035,12,9036,12,9039,12,9042],{},[14,9037],{"srcSet":9038,"type":17},"/blog_images/portfolio-weight/portfolio-weight-formula.avif",[14,9040],{"srcSet":9041,"type":21},"/blog_images/portfolio-weight/portfolio-weight-formula.webp",[23,9043],{"alt":9044,"src":9045,"style":1354,"width":9046,"height":9047,"decoding":30,"fetchPriority":31},"Portfolio Weight Formula","/blog_images/portfolio-weight/portfolio-weight-formula.png",600,83,[35,9049,9050],{},"Two rules keep the calculation honest. Use current market values rather than what you paid, because weight describes present exposure, not history. And value every position on the same date and in the same currency, or the weights will not add up to 100%.",[35,9052,9053,9054,9058],{},"Alternatively, you can use our ",[219,9055,9057],{"href":9056},"/tools/portfolio-weight-calculator/","free Portfolio Weight Calculator"," to calculate it for you.",[39,9060,9062],{"id":9061},"portfolio-weight-calculation-example","Portfolio weight calculation example",[35,9064,9065],{},"A $12,000 position in a $50,000 portfolio has a portfolio weight of 24%, because 12,000 divided by 50,000 is 0.24.",[35,9067,9068],{},"Take a portfolio holding five things, valued on the same day:",[80,9070,9071,9084],{},[83,9072,9073],{},[86,9074,9075,9078,9081],{},[89,9076,9077],{},"Holding",[89,9079,9080],{},"Market value",[89,9082,9083],{},"Portfolio weight",[96,9085,9086,9097,9108,9119,9130,9141],{},[86,9087,9088,9091,9094],{},[101,9089,9090],{},"AAPL",[101,9092,9093],{},"$12,000",[101,9095,9096],{},"24%",[86,9098,9099,9102,9105],{},[101,9100,9101],{},"MSFT",[101,9103,9104],{},"$9,000",[101,9106,9107],{},"18%",[86,9109,9110,9113,9116],{},[101,9111,9112],{},"VOO (S&P 500 ETF)",[101,9114,9115],{},"$20,000",[101,9117,9118],{},"40%",[86,9120,9121,9124,9127],{},[101,9122,9123],{},"Bond ETF",[101,9125,9126],{},"$6,000",[101,9128,9129],{},"12%",[86,9131,9132,9135,9138],{},[101,9133,9134],{},"Cash",[101,9136,9137],{},"$3,000",[101,9139,9140],{},"6%",[86,9142,9143,9148,9153],{},[101,9144,9145],{},[287,9146,9147],{},"Total",[101,9149,9150],{},[287,9151,9152],{},"$50,000",[101,9154,9155],{},[287,9156,9157],{},"100%",[35,9159,9160],{},"Working the formula, which is the position's value divided by total portfolio value, for the AAPL holding:",[2246,9162,9164],{"className":2248,"code":9163,"language":2250,"meta":400,"style":400},"Portfolio Weight = ($12,000 / $50,000) x 100 = 24%\n",[2252,9165,9166],{"__ignoreMap":400},[2255,9167,9168],{"class":2257,"line":2258},[2255,9169,9163],{},[35,9171,9172],{},"The weights sum to 100%, which is the check worth running every time. Notice what the table reveals: the S&P 500 ETF at 40% is the largest single exposure, and because that ETF also holds AAPL and MSFT inside it, the portfolio's true exposure to those two companies is higher than the 24% and 18% shown.",[39,9174,9176],{"id":9175},"can-portfolio-weight-be-measured-in-shares-instead-of-value","Can portfolio weight be measured in shares instead of value?",[35,9178,9179],{},"Yes, portfolio weight can be measured as a share of the total number of shares held, but the result answers a different and usually less useful question. Values are the standard basis.",[35,9181,9182],{},"A portfolio holding 500 shares in total, of which 100 are one company, has a share-count weight of 20% for that company. If those 100 shares trade at $10 and the other 400 trade at $200, the position is only $1,000 out of $81,000, a value weight of about 1.2%. The share count says 20%; the money at risk says 1.2%.",[35,9184,9185],{},"Share-count weight is occasionally useful for options and voting-rights questions. For measuring exposure, risk or performance contribution, use market value.",[39,9187,9189],{"id":9188},"why-is-portfolio-weight-important","Why is portfolio weight important?",[35,9191,9192],{},"Portfolio weight is important because it determines how much risk and how much return each holding contributes to the portfolio as a whole. Three uses stand out.",[44,9194,9195,9201,9210],{},[47,9196,9197,9200],{},[287,9198,9199],{},"Risk management."," Knowing the portfolio weight of each asset shows where concentration sits. Overweighting a single stock or sector means a downturn in that one place damages the whole portfolio disproportionately.",[47,9202,9203,9206,9207,733],{},[287,9204,9205],{},"Diversification."," Portfolio weight analysis is how diversification is measured in practice. Counting holdings is not enough: a 20-stock portfolio with 45% in one name is far less diversified than the count suggests, which is why weight belongs alongside ",[219,9208,9209],{"href":878},"the question of how many stocks you should own",[47,9211,9212,9215,9216,733],{},[287,9213,9214],{},"Performance attribution."," Multiplying each holding's weight by its return shows which positions actually drove the portfolio's gain or loss. That calculation is the basis of the ",[219,9217,9218],{"href":1030},"weighted average method of calculating portfolio return",[35,9220,9221],{},"Keeping weights current means revaluing every position, in every account and currency, every time prices move. Portseido consolidates holdings across brokers and currencies and shows the weight of each position and asset class in the combined portfolio, so the concentration you actually carry stays visible without a spreadsheet.",[39,9223,9225],{"id":9224},"what-is-a-good-portfolio-weight-for-a-single-stock","What is a good portfolio weight for a single stock?",[35,9227,9228],{},"Most individual investors cap any single stock at 5% to 10% of the portfolio, a band that limits the damage from one company failing while still letting a good position matter. Concentrated investors who research businesses deeply run higher weights deliberately, sometimes 20% or more in a single name.",[35,9230,9231],{},"There is no universal limit, because the right weight depends on conviction, on how well you understand the business, and on what a total loss of that position would do to your plans. Two practical guardrails:",[178,9233,9234,9240],{},[47,9235,9236,9239],{},[287,9237,9238],{},"Ask what a 50% fall would cost you."," A 10% position halving costs the portfolio 5%. A 40% position halving costs 20%, which is a different kind of year.",[47,9241,9242,9245],{},[287,9243,9244],{},"Count look-through exposure."," If an index fund you hold also owns the stock, your real weight is higher than your direct position shows.",[35,9247,9248,9249,9252],{},"Position-level weights sit inside a broader decision about ",[219,9250,9251],{"href":247},"how to split capital across asset classes",", which usually has more effect on portfolio outcomes than any single stock's weight.",[39,9254,9256],{"id":9255},"why-do-portfolio-weights-change-on-their-own","Why do portfolio weights change on their own?",[35,9258,9259],{},"Portfolio weights change on their own because prices move at different rates, so a holding that outperforms takes up a growing share of the portfolio without you buying more of it.",[35,9261,9262],{},"A position deliberately sized at 10% of a portfolio that then triples, while the rest of the portfolio is flat, ends up at roughly 25%. The investor made one decision and ended up with a portfolio that reflects a much more concentrated one. This silent process is called drift.",[35,9264,9265,9266,9268],{},"Rebalancing is the correction: selling part of what has grown past its target weight and adding to what has fallen below it. It carries costs — commissions on every trade and realised capital gains in a taxable account — so most long-term investors rebalance on a schedule or when a weight drifts past a set band, rather than continuously. Our ",[219,9267,1697],{"href":1696}," works out the trades required to return a portfolio to its target weights.",[39,9270,9272],{"id":9271},"examples-of-portfolio-weights","Examples of portfolio weights",[10,9274,12,9275,12,9278,12,9281],{},[14,9276],{"srcSet":9277,"type":17},"/blog_images/portfolio-weight/berkshire-hathaway-portfolio-allocation.avif",[14,9279],{"srcSet":9280,"type":21},"/blog_images/portfolio-weight/berkshire-hathaway-portfolio-allocation.webp",[23,9282],{"alt":9283,"src":9284,"style":9285,"width":9286,"height":9287,"loading":670,"decoding":30},"Berkshire Hathaway Portfolio Allocation","/blog_images/portfolio-weight/berkshire-hathaway-portfolio-allocation.png","max-width:100%; width:800px; height:auto;aspect-ratio:'attr(width) / attr(height)';margin-left: auto;margin-right: auto;",800,385,[35,9289,9290],{},"Warren Buffett's Berkshire Hathaway public equity portfolio is a well-known example of a heavily weighted position. The image above shows that portfolio as of November 1st, 2023, excluding cash. With a $156 billion AAPL position in a $331 billion portfolio, the portfolio weight of AAPL is calculated by dividing the position value by the total portfolio value:",[2246,9292,9294],{"className":2248,"code":9293,"language":2250,"meta":400,"style":400},"Portfolio Weight = ($156 billion / $331 billion) x 100 = 47.1%\n",[2252,9295,9296],{"__ignoreMap":400},[2255,9297,9298],{"class":2257,"line":2258},[2255,9299,9293],{},[35,9301,9302],{},"Almost half of that portfolio sat in a single company. Note that these figures describe a specific filing date and will have changed since.",[35,9304,9305],{},"Portfolio weight can also be aggregated by sector. Adding together every Berkshire holding classified as financial services, and dividing that total by the $331 billion portfolio value, gives the portfolio's weight in financial services — a clearer view of what the portfolio is really exposed to than any single ticker provides.",[39,9307,320],{"id":319},[140,9309,9311],{"id":9310},"do-portfolio-weights-always-add-up-to-100","Do portfolio weights always add up to 100%?",[35,9313,9314],{},"Yes, when every position is valued on the same date, in the same currency, and cash is included. If your weights do not sum to 100%, the usual causes are a missing account, an uncounted cash balance, or positions priced on different days. Portfolios using margin are the exception: borrowed money can push the weights of invested positions above 100% in total.",[140,9316,9318],{"id":9317},"should-portfolio-weight-use-market-value-or-cost-basis","Should portfolio weight use market value or cost basis?",[35,9320,9321],{},"Use market value. Portfolio weight measures the exposure you carry today, and today's exposure is set by what the position is worth now, not by what you paid for it. Cost-based weights understate positions that have risen and overstate ones that have fallen — exactly the opposite of the risk picture you need.",[140,9323,9325],{"id":9324},"how-is-portfolio-weight-different-from-asset-allocation","How is portfolio weight different from asset allocation?",[35,9327,9328],{},"Portfolio weight is the share of the portfolio held in one specific position, while asset allocation is the share held in each broad asset class, such as stocks, bonds or cash. Asset allocation is effectively the sum of the portfolio weights of everything inside each class, so the two are the same arithmetic applied at different levels of grouping.",[140,9330,9332],{"id":9331},"does-cash-count-when-calculating-portfolio-weight","Does cash count when calculating portfolio weight?",[35,9334,9335],{},"Include cash in the total portfolio value if you consider it part of your investment portfolio, and exclude it if you do not — but be consistent, and say which basis you used. Excluding a large cash balance inflates every other holding's weight and can make a portfolio look far more concentrated in equities than it really is.",[39,9337,9339],{"id":9338},"how-to-track-portfolio-weight-in-portseido","How to track portfolio weight in Portseido",[35,9341,9342],{},"Portseido is a portfolio tracker that keeps the weight of every position current without manual revaluation. It consolidates holdings across multiple brokers and multiple currencies into one portfolio, shows the asset allocation breakdown and the weight of each holding, tracks cost basis, dividends and yield on cost, and calculates time-weighted and money-weighted returns. Transactions can be imported from brokers or from a CSV, and the portfolio can be benchmarked against indices and ETFs.",[35,9344,9345,9346],{},"It suits investors whose holdings are spread over several accounts, where no single broker screen shows the true weight of anything. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,9347,363],{"href":361,"rel":9348},[240],[2524,9350,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":9352},[9353,9354,9355,9358,9359,9360,9361,9362,9363,9364,9370],{"id":41,"depth":404,"text":42},{"id":9003,"depth":404,"text":9004},{"id":9016,"depth":404,"text":9017,"children":9356},[9357],{"id":9032,"depth":401,"text":9033},{"id":9061,"depth":404,"text":9062},{"id":9175,"depth":404,"text":9176},{"id":9188,"depth":404,"text":9189},{"id":9224,"depth":404,"text":9225},{"id":9255,"depth":404,"text":9256},{"id":9271,"depth":404,"text":9272},{"id":319,"depth":404,"text":320,"children":9365},[9366,9367,9368,9369],{"id":9310,"depth":401,"text":9311},{"id":9317,"depth":401,"text":9318},{"id":9324,"depth":401,"text":9325},{"id":9331,"depth":401,"text":9332},{"id":9338,"depth":404,"text":9339},"Portfolio weight is one position's value as a percentage of total portfolio value. Divide the position's value by the portfolio's total value to calculate it.",{},"/blog/portfolio-weight","2023-11-01",{"title":8963,"description":9371},"blog/portfolio-weight","NKbcxFvlzsyFjviRZKMuHApxYzbszBsq6oPC6m-yakw",{"id":9379,"title":9380,"body":9381,"description":9793,"extension":428,"meta":9794,"navigation":430,"path":9795,"publishedAt":9796,"seo":9797,"seo_description":434,"seo_title":434,"social_image":9394,"stem":9798,"updatedAt":436,"__hash__":9799},"blog/blog/roce.md","Return on Capital Employed (ROCE) - Definition, Formula & Example",{"type":7,"value":9382,"toc":9772},[9383,9396,9399,9401,9418,9422,9425,9428,9431,9435,9438,9451,9470,9473,9476,9490,9494,9497,9512,9515,9519,9522,9525,9540,9543,9547,9550,9553,9573,9577,9580,9604,9608,9611,9614,9663,9666,9670,9673,9677,9680,9684,9687,9719,9726,9728,9732,9735,9739,9742,9746,9749,9753,9756,9758,9764,9770],[10,9384,12,9385,12,9388,12,9391],{},[14,9386],{"srcSet":9387,"type":17},"/blog_images/roce/roce-cover.avif",[14,9389],{"srcSet":9390,"type":21},"/blog_images/roce/roce-cover.webp",[23,9392],{"alt":9393,"src":9394,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":9395},"What is ROCE?","/blog_images/roce/roce-cover.png",[33],[35,9397,9398],{},"Return on Capital Employed (ROCE) is a profitability ratio that shows how much operating profit a company produces from every unit of long-term capital it uses. It is a favourite of investors who care about business quality, because a company that can reinvest at a high ROCE compounds its own capital without needing to raise more.",[39,9400,42],{"id":41},[44,9402,9403,9406,9409,9412,9415],{},[47,9404,9405],{},"Return on Capital Employed (ROCE) measures a company's efficiency at converting the capital it uses into operating profit, expressed as a percentage.",[47,9407,9408],{},"ROCE is calculated as earnings before interest and taxes (EBIT) divided by capital employed, where capital employed is shareholders' equity plus non-current liabilities.",[47,9410,9411],{},"A higher ROCE indicates a company generating more profit per unit of capital, and a ROCE consistently above the company's cost of capital is the sign that the business creates value.",[47,9413,9414],{},"ROCE differs from ROE, which uses only shareholders' equity, and from ROIC, which uses interest-bearing debt rather than all non-current liabilities.",[47,9416,9417],{},"ROCE is built on book values, so it flatters companies with old, heavily depreciated assets and penalises those carrying large goodwill from acquisitions.",[39,9419,9421],{"id":9420},"what-is-return-on-capital-employed-roce","What is Return on Capital Employed (ROCE)?",[35,9423,9424],{},"Return on Capital Employed, or ROCE, is a financial metric that measures a company's efficiency in using its capital to generate profit. The higher the ROCE, the more operating profit the company squeezes out of each unit of capital it employs.",[35,9426,9427],{},"Capital employed means the long-term funding the business runs on: the money shareholders have put in and left in, plus long-term borrowings and other non-current liabilities. It excludes short-term operating liabilities such as trade payables, on the grounds that those are a by-product of trading rather than capital anyone had to supply.",[35,9429,9430],{},"Because ROCE is measured before interest, it is indifferent to how the business is financed. That makes it a cleaner comparison across companies with different debt levels than return on equity, which flatters companies simply for borrowing more.",[39,9432,9434],{"id":9433},"how-is-roce-calculated","How is ROCE calculated?",[35,9436,9437],{},"ROCE is calculated by dividing earnings before interest and taxes (EBIT) by capital employed, which is the sum of shareholders' equity and non-current liabilities.",[10,9439,12,9440,12,9443,12,9446],{},[14,9441],{"srcSet":9442,"type":17},"/blog_images/roce/roce-formula.avif",[14,9444],{"srcSet":9445,"type":21},"/blog_images/roce/roce-formula.webp",[23,9447],{"alt":9448,"src":9449,"style":9450,"width":8382,"height":8383,"decoding":30},"ROCE formula","/blog_images/roce/roce-formula.png","max-width:100%;width:350px;height:auto;aspect-ratio: 'attr(width) / attr(height);margin-left: auto;margin-right: auto;'",[2246,9452,9454],{"className":2248,"code":9453,"language":2250,"meta":400,"style":400},"ROCE = EBIT / Total Capital Employed\n\nTotal Capital Employed = Shareholders' Equity + Non-Current Liabilities\n",[2252,9455,9456,9461,9465],{"__ignoreMap":400},[2255,9457,9458],{"class":2257,"line":2258},[2255,9459,9460],{},"ROCE = EBIT / Total Capital Employed\n",[2255,9462,9463],{"class":2257,"line":404},[2255,9464,3035],{"emptyLinePlaceholder":430},[2255,9466,9467],{"class":2257,"line":401},[2255,9468,9469],{},"Total Capital Employed = Shareholders' Equity + Non-Current Liabilities\n",[35,9471,9472],{},"Where EBIT is earnings before interest and taxes for the period, and Total Capital Employed is the sum of shareholders' equity and non-current liabilities at the beginning of the period.",[35,9474,9475],{},"Two conventions matter when calculating ROCE:",[178,9477,9478,9484],{},[47,9479,9480,9483],{},[287,9481,9482],{},"Use opening capital employed."," ROCE asks how much profit was generated from the capital the business started the period with, so take the balance sheet figures from the beginning of the period. Some analysts average the opening and closing figures instead; either is defensible, provided you are consistent when comparing companies.",[47,9485,9486,9489],{},[287,9487,9488],{},"Use EBIT, not net income."," EBIT sits above the interest and tax lines, which keeps the numerator independent of the company's financing mix and tax jurisdiction.",[140,9491,9493],{"id":9492},"a-simple-roce-example","A simple ROCE example",[35,9495,9496],{},"A company that earned EBIT of $40 million during a year, having started that year with $120 million of shareholders' equity and $80 million of non-current liabilities, has a ROCE of 20%.",[2246,9498,9500],{"className":2248,"code":9499,"language":2250,"meta":400,"style":400},"Total Capital Employed = 120 + 80 = 200\nROCE = 40 / 200 = 20%\n",[2252,9501,9502,9507],{"__ignoreMap":400},[2255,9503,9504],{"class":2257,"line":2258},[2255,9505,9506],{},"Total Capital Employed = 120 + 80 = 200\n",[2255,9508,9509],{"class":2257,"line":404},[2255,9510,9511],{},"ROCE = 40 / 200 = 20%\n",[35,9513,9514],{},"Every $100 of long-term capital in that business produced $20 of operating profit over the year.",[39,9516,9518],{"id":9517},"roce-calculation-example-using-real-financial-statements","ROCE calculation example using real financial statements",[35,9520,9521],{},"Apple's 10-K filing for the 2022 financial year reports EBIT of $119,437 million, against shareholders' equity of $63,090 million and non-current liabilities of $162,431 million at the beginning of that financial year, giving a ROCE of 52.96%.",[35,9523,9524],{},"Because ROCE measures how efficiently a company used the capital it had available, the capital employed at the beginning of the period is the right figure to use.",[2246,9526,9528],{"className":2248,"code":9527,"language":2250,"meta":400,"style":400},"Total Capital Employed = 63,090 + 162,431 = 225,521\nROCE = 119,437 / 225,521 = 52.96%\n",[2252,9529,9530,9535],{"__ignoreMap":400},[2255,9531,9532],{"class":2257,"line":2258},[2255,9533,9534],{},"Total Capital Employed = 63,090 + 162,431 = 225,521\n",[2255,9536,9537],{"class":2257,"line":404},[2255,9538,9539],{},"ROCE = 119,437 / 225,521 = 52.96%\n",[35,9541,9542],{},"A ROCE near 53% means the business generated almost 53 cents of operating profit for every dollar of long-term capital it started the year with. Figures at that level usually reflect a business whose real assets are intangible — brands, software, customer relationships — because those do not sit on the balance sheet at anything like their economic value, which shrinks the denominator.",[39,9544,9546],{"id":9545},"what-is-a-good-roce","What is a good ROCE?",[35,9548,9549],{},"A good ROCE is one that comfortably exceeds the company's cost of capital, because a business earning less than it pays for capital destroys value even while reporting a profit. As a practical convention, many analysts treat a ROCE sustained above roughly 15% as the mark of a high-quality business, and below 10% as a signal to look harder at why.",[35,9551,9552],{},"Three qualifications matter more than the threshold:",[44,9554,9555,9561,9567],{},[47,9556,9557,9560],{},[287,9558,9559],{},"Compare within an industry."," Utilities, telecoms and heavy manufacturing structurally report lower ROCE than software or consumer brands, so a 12% ROCE can be excellent in one industry and mediocre in another.",[47,9562,9563,9566],{},[287,9564,9565],{},"Look at the trend, not the year."," A single year's ROCE can be moved by an asset sale, an acquisition or a one-off charge. Five years of figures shows whether the efficiency belongs to the business or to the period.",[47,9568,9569,9572],{},[287,9570,9571],{},"Check it is reinvestable."," A high ROCE only compounds if the company can deploy more capital at a similar rate. A niche business earning 40% on a small capital base with nowhere to reinvest is a different proposition from one that can grow at that rate for a decade.",[39,9574,9576],{"id":9575},"why-is-roce-important","Why is ROCE important?",[35,9578,9579],{},"ROCE is important because it links profitability to the capital required to produce it, and that relationship determines whether growth actually creates value for shareholders. It serves three purposes for an investor:",[178,9581,9582,9588,9594],{},[47,9583,9584,9587],{},[287,9585,9586],{},"It measures capital efficiency."," Two companies can report the same operating profit while one needed twice the capital to generate it. ROCE separates them.",[47,9589,9590,9593],{},[287,9591,9592],{},"It supports comparison across companies."," Because ROCE is calculated before interest, it compares operating performance across businesses with different capital structures more fairly than return on equity does.",[47,9595,9596,9599,9600,9603],{},[287,9597,9598],{},"It frames the reinvestment case."," A company with a high ROCE and genuine growth opportunities can reinvest its profits at that rate, producing higher profits and more capital to reinvest again. That loop is the mechanism behind long-run compounding, and it is why the ",[219,9601,9602],{"href":1934},"decision to pay a dividend or retain earnings"," is really a question about ROCE.",[39,9605,9607],{"id":9606},"roce-vs-roic-return-on-invested-capital","ROCE vs ROIC (Return on Invested Capital)",[35,9609,9610],{},"ROCE and ROIC both measure capital efficiency, but they define the capital base differently: ROCE uses shareholders' equity plus all non-current liabilities, while ROIC uses shareholders' equity plus interest-bearing debt wherever it sits on the balance sheet.",[35,9612,9613],{},"The practical difference is what each includes:",[80,9615,9616,9628],{},[83,9617,9618],{},[86,9619,9620,9622,9625],{},[89,9621],{},[89,9623,9624],{},"ROCE",[89,9626,9627],{},"ROIC",[96,9629,9630,9641,9652],{},[86,9631,9632,9635,9638],{},[101,9633,9634],{},"Numerator",[101,9636,9637],{},"EBIT",[101,9639,9640],{},"Operating profit after tax (NOPAT) in most definitions",[86,9642,9643,9646,9649],{},[101,9644,9645],{},"Debt included",[101,9647,9648],{},"All non-current liabilities",[101,9650,9651],{},"All interest-bearing debt, current and non-current",[86,9653,9654,9657,9660],{},[101,9655,9656],{},"Excess cash",[101,9658,9659],{},"Included in the capital base",[101,9661,9662],{},"Usually excluded",[35,9664,9665],{},"ROIC counts only the capital actually invested in operations. In Apple's case, invested capital would include term debt from non-current liabilities plus commercial paper and term debt from current liabilities, while excluding the cash pile that ROCE leaves in the denominator. For a cash-rich company, ROIC is usually the higher of the two figures.",[39,9667,9669],{"id":9668},"roce-vs-roa-return-on-assets","ROCE vs ROA (Return on Assets)",[35,9671,9672],{},"ROCE and ROA differ in one respect: ROA measures profit against a company's total assets, while ROCE measures it against total assets less current liabilities. Return on Assets asks how much profit the business generates from everything it controls; ROCE narrows that to the capital that had to be funded long term, on the view that short-term operating liabilities such as trade payables come from the ordinary course of business rather than from investors. A company funding a large share of operations through supplier credit will therefore show a materially higher ROCE than ROA.",[39,9674,9676],{"id":9675},"roce-vs-roe-return-on-equity","ROCE vs ROE (Return on Equity)",[35,9678,9679],{},"ROCE and ROE differ in what capital they hold the company accountable for: ROE measures profitability against shareholders' equity alone, while ROCE measures it against equity plus non-current liabilities. Because ROE ignores debt in its denominator and is calculated after interest, a company can raise its ROE simply by replacing equity with borrowing — a higher figure that reflects leverage rather than better operations, and carries the risk leverage brings. ROCE incorporates both equity and non-current liabilities, so it is harder to flatter through financing decisions.",[39,9681,9683],{"id":9682},"what-are-the-limitations-of-roce","What are the limitations of ROCE?",[35,9685,9686],{},"The main limitation of ROCE is that both of its inputs are accounting figures, so ROCE measures book efficiency rather than economic efficiency.",[44,9688,9689,9695,9701,9707,9713],{},[47,9690,9691,9694],{},[287,9692,9693],{},"Old assets inflate it."," Property and equipment sit on the balance sheet at cost less accumulated depreciation, so a company running twenty-year-old factories shows a small denominator and a high ROCE without being more efficient than a competitor that just built new ones.",[47,9696,9697,9700],{},[287,9698,9699],{},"Acquisitions depress it."," Goodwill enters the capital base at full price, so an acquisitive company reports a lower ROCE than an identical business that grew organically.",[47,9702,9703,9706],{},[287,9704,9705],{},"Intangibles are missing."," Internally developed brands, software and research are expensed rather than capitalised, which removes them from the denominator and can push ROCE to levels that overstate the economics.",[47,9708,9709,9712],{},[287,9710,9711],{},"Excess cash drags it down."," Cash sits inside shareholders' equity but earns little operating profit, so a cash-rich company's ROCE understates the return on the capital actually working.",[47,9714,9715,9718],{},[287,9716,9717],{},"It is a single-period snapshot."," ROCE says nothing about growth, competitive durability or whether the return can be repeated on new capital.",[35,9720,9721,9722,733],{},"Treat ROCE as one input to a judgement about business quality rather than a verdict on its own, and read it alongside cash flow, growth and whatever ",[219,9723,9725],{"href":9724},"/blog/alternative-data-for-investing/","non-financial evidence you can gather about the business",[39,9727,320],{"id":319},[140,9729,9731],{"id":9730},"is-a-higher-roce-always-better","Is a higher ROCE always better?",[35,9733,9734],{},"Not automatically. A very high Return on Capital Employed can reflect a genuinely efficient business, or an artefact of a small book capital base — heavily depreciated assets, expensed intangibles, or a company that leases rather than owns. Check whether the figure is stable over several years, and whether the company has room to reinvest at that rate, before treating it as a quality signal.",[140,9736,9738],{"id":9737},"what-is-the-difference-between-roce-and-profit-margin","What is the difference between ROCE and profit margin?",[35,9740,9741],{},"Profit margin measures profit as a share of revenue, while ROCE measures profit as a share of the capital used to generate it. A supermarket can run a 3% margin and a respectable ROCE because it turns its capital over many times a year; a shipbuilder can post a high margin and a poor ROCE because each unit of capital produces revenue slowly.",[140,9743,9745],{"id":9744},"can-roce-be-negative","Can ROCE be negative?",[35,9747,9748],{},"Yes. ROCE is negative whenever a company reports negative EBIT, meaning it lost money at the operating level before interest and tax. A negative ROCE says the business consumed capital rather than earning a return on it. This is common for early-stage companies and for established ones in a bad year, so the trend matters more than the single figure.",[140,9750,9752],{"id":9751},"where-do-i-find-the-numbers-to-calculate-roce","Where do I find the numbers to calculate ROCE?",[35,9754,9755],{},"EBIT comes from the income statement, usually reported as operating income. Shareholders' equity and non-current liabilities come from the balance sheet — and for this calculation you want the balance sheet at the beginning of the period, which is the prior year's closing balance sheet. Both statements appear in a company's annual report or 10-K filing.",[39,9757,898],{"id":897},[35,9759,9760,9761,9763],{},"Portseido is a portfolio tracker, not a fundamental analysis tool. It does not calculate ROCE or pull financial statement data. What it does is keep the position side in order once you have researched a company and bought it: consolidating holdings across brokers and currencies, tracking cost basis, dividends and yield on cost, calculating ",[219,9762,3138],{"href":1030},", and benchmarking the portfolio against indices and ETFs.",[35,9765,9766,9767],{},"That gives you one place to see whether the high-ROCE businesses you picked have actually rewarded you. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,9768,363],{"href":361,"rel":9769},[240],[2524,9771,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":9773},[9774,9775,9776,9779,9780,9781,9782,9783,9784,9785,9786,9792],{"id":41,"depth":404,"text":42},{"id":9420,"depth":404,"text":9421},{"id":9433,"depth":404,"text":9434,"children":9777},[9778],{"id":9492,"depth":401,"text":9493},{"id":9517,"depth":404,"text":9518},{"id":9545,"depth":404,"text":9546},{"id":9575,"depth":404,"text":9576},{"id":9606,"depth":404,"text":9607},{"id":9668,"depth":404,"text":9669},{"id":9675,"depth":404,"text":9676},{"id":9682,"depth":404,"text":9683},{"id":319,"depth":404,"text":320,"children":9787},[9788,9789,9790,9791],{"id":9730,"depth":401,"text":9731},{"id":9737,"depth":401,"text":9738},{"id":9744,"depth":401,"text":9745},{"id":9751,"depth":401,"text":9752},{"id":897,"depth":404,"text":898},"ROCE measures how efficiently a company turns its capital into profit, calculated as EBIT divided by capital employed and expressed as a percentage.",{},"/blog/roce","2023-10-29",{"title":9380,"description":9793},"blog/roce","nWjVi-XfqiDFguljmulXFuUKKzb33R8yySV0XN-mbqM",{"id":9801,"title":9802,"body":9803,"description":10125,"extension":428,"meta":10126,"navigation":430,"path":10127,"publishedAt":10128,"seo":10129,"seo_description":434,"seo_title":434,"social_image":9815,"stem":10130,"updatedAt":436,"__hash__":10131},"blog/blog/should-you-have-multiple-investment-accounts.md","Should you have multiple investment accounts?",{"type":7,"value":9804,"toc":10108},[9805,9817,9820,9822,9839,9842,9845,9848,9851,9855,9858,9861,9864,9868,9871,9933,9936,9939,9943,9946,9992,9995,9999,10002,10028,10031,10035,10038,10041,10044,10048,10051,10057,10065,10067,10071,10074,10078,10081,10085,10088,10092,10095,10099,10102],[10,9806,12,9807,12,9810,12,9813],{},[14,9808],{"srcSet":9809,"type":17},"/blog_images/should-you-have-multiple-investment-accounts/should-you-have-multiple-investment-accounts-cover.avif",[14,9811],{"srcSet":9812,"type":21},"/blog_images/should-you-have-multiple-investment-accounts/should-you-have-multiple-investment-accounts-cover.webp",[23,9814],{"alt":9802,"src":9815,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":9816},"/blog_images/should-you-have-multiple-investment-accounts/should-you-have-multiple-investment-accounts-cover.png",[33],[35,9818,9819],{},"Most investors end up with more than one brokerage account without ever deciding to. A workplace plan here, a low-cost app there, an old account nobody got round to closing. The question is whether that sprawl is doing anything for you, and what it costs when it is not. This guide covers how many accounts you can hold, what multiple accounts genuinely buy you, what they cost, and how to keep a clear view of the total.",[39,9821,42],{"id":41},[44,9823,9824,9827,9830,9833,9836],{},[47,9825,9826],{},"There is no legal limit on how many investment accounts you can open, so the constraint is practical rather than regulatory.",[47,9828,9829],{},"Multiple brokerage accounts are useful for accessing different markets, fee structures and account types, and for separating money earmarked for different goals.",[47,9831,9832],{},"The main cost of multiple brokerage accounts is that no single account shows your true portfolio: your asset allocation, position weights and overall return are only meaningful when every account is counted together.",[47,9834,9835],{},"In the US, SIPC protection covers up to $500,000 per customer per brokerage, including a $250,000 limit for cash, but it covers broker failure rather than investment losses.",[47,9837,9838],{},"Two or three accounts, each with a clear purpose, gives most investors the flexibility they need without the administrative drag of many.",[39,9840,9802],{"id":9841},"should-you-have-multiple-investment-accounts",[35,9843,9844],{},"Two or three investment accounts, each with a clear reason to exist, suits most investors. Beyond that the marginal benefit falls away quickly while the admin — logins, statements, tax documents and reconciliation — grows with every account you add.",[35,9846,9847],{},"The test is whether each account does something the others cannot. A second broker that gives you access to a market or an account type your first one does not offer is earning its place. A second broker that holds a near-identical set of index funds is just another password.",[35,9849,9850],{},"The number is not the real question either way. What matters is whether you can still see your total portfolio at a glance, because every meaningful investment decision is made at the level of the whole, not the account.",[39,9852,9854],{"id":9853},"how-many-brokerage-accounts-can-you-have","How many brokerage accounts can you have?",[35,9856,9857],{},"Legally you can have as many investment accounts as you want. There is no cap on the number of taxable brokerage accounts an individual may open, and no penalty for holding accounts at several firms at once.",[35,9859,9860],{},"Tax-advantaged accounts are different. Contribution limits for retirement and tax-sheltered accounts generally apply per person across all accounts of that type, not per account, so opening a second one does not let you contribute twice.",[35,9862,9863],{},"The practical limit is your own time. Each account adds a login, a statement to file, a set of tax paperwork and one more place your asset allocation can quietly drift out of line.",[39,9865,9867],{"id":9866},"what-are-the-benefits-of-having-multiple-brokerage-accounts","What are the benefits of having multiple brokerage accounts?",[35,9869,9870],{},"The main benefits of multiple brokerage accounts are broader access, lower costs on specific trades, and cleaner separation between pots of money with different purposes.",[80,9872,9873,9883],{},[83,9874,9875],{},[86,9876,9877,9880],{},[89,9878,9879],{},"Benefit",[89,9881,9882],{},"What it means in practice",[96,9884,9885,9893,9901,9909,9917,9925],{},[86,9886,9887,9890],{},[101,9888,9889],{},"Counterparty diversification",[101,9891,9892],{},"Spreading funds across platforms limits the disruption if one broker fails or freezes withdrawals",[86,9894,9895,9898],{},[101,9896,9897],{},"Fee optimisation",[101,9899,9900],{},"Fee structures differ by asset class and market, so a second broker can be materially cheaper for certain trades",[86,9902,9903,9906],{},[101,9904,9905],{},"Market and product access",[101,9907,9908],{},"Some brokers offer markets, currencies, fractional shares or asset types that others do not",[86,9910,9911,9914],{},[101,9912,9913],{},"Account types",[101,9915,9916],{},"Retirement, tax-sheltered and taxable accounts often have to sit at different providers",[86,9918,9919,9922],{},[101,9920,9921],{},"Goal separation",[101,9923,9924],{},"Keeping a house deposit in one account and long-term investments in another stops the two being mentally pooled",[86,9926,9927,9930],{},[101,9928,9929],{},"Tooling",[101,9931,9932],{},"Some platforms have better research or order types; others are cheaper to hold assets at",[35,9934,9935],{},"Counterparty diversification is the benefit most often overstated. In markets with broker asset protection, client securities are held separately from the broker's own assets, so a broker failure is usually an inconvenience rather than a loss. Spreading assets across two brokers reduces the inconvenience; it is not the same kind of risk reduction as diversifying across asset classes.",[35,9937,9938],{},"Goal separation is the benefit most often underrated. Money that has a name and a deadline attached to it is much harder to spend on an impulse trade.",[39,9940,9942],{"id":9941},"what-are-the-downsides-of-having-multiple-brokerage-accounts","What are the downsides of having multiple brokerage accounts?",[35,9944,9945],{},"The primary downside of multiple brokerage accounts is that none of them shows your actual portfolio, which makes overall performance, allocation and concentration difficult to see.",[44,9947,9948,9958,9967,9976,9986],{},[47,9949,9950,9953,9954,9957],{},[287,9951,9952],{},"Fragmented performance."," Each broker calculates return over its own account, using its own method and start date. Adding those percentages together gives you nothing usable, so ",[219,9955,9956],{"href":1030},"calculating portfolio return"," across accounts means rebuilding it from the underlying transactions.",[47,9959,9960,9963,9964,9966],{},[287,9961,9962],{},"Invisible concentration."," Holding the same stock at three brokers looks like three modest positions. Combined, it can be your largest exposure by some distance, which is exactly what tracking ",[219,9965,4191],{"href":1762}," is meant to catch.",[47,9968,9969,9972,9973,9975],{},[287,9970,9971],{},"Drifting allocation."," Your ",[219,9974,248],{"href":247}," is a property of your total wealth, not of any one account. Holding bonds at one broker and stocks at another can leave you far from your target while each account looks reasonable on its own.",[47,9977,9978,9981,9982,9985],{},[287,9979,9980],{},"Split cost basis."," Each broker tracks ",[219,9983,9984],{"href":6324},"cost basis"," only for the shares it holds, so the average cost of a stock you bought at two brokers is not shown anywhere.",[47,9987,9988,9991],{},[287,9989,9990],{},"Administrative load."," More accounts mean more logins and credentials to secure, more statements, and more tax documents to gather at the end of the year.",[35,9993,9994],{},"Currency makes all of this harder. If one account reports in dollars and another in euros, every combined figure needs a conversion at the right date before it means anything.",[39,9996,9998],{"id":9997},"when-does-a-second-investment-account-genuinely-make-sense","When does a second investment account genuinely make sense?",[35,10000,10001],{},"A second investment account makes sense when it gives you access, cost savings or separation that your existing account cannot provide. Four situations qualify clearly.",[178,10003,10004,10010,10016,10022],{},[47,10005,10006,10009],{},[287,10007,10008],{},"You need a different account type."," Retirement, tax-sheltered and taxable accounts serve different purposes and often cannot live at the same provider.",[47,10011,10012,10015],{},[287,10013,10014],{},"You need a market your broker does not cover."," International exchanges, specific ETFs, bonds, or crypto frequently require a different platform.",[47,10017,10018,10021],{},[287,10019,10020],{},"The fee difference is material to how you trade."," If a second broker is meaningfully cheaper for the trades you actually place, the saving is real and recurring.",[47,10023,10024,10027],{},[287,10025,10026],{},"You want hard separation between goals."," A separate account for a near-term goal keeps that money from being drawn into long-term investment decisions.",[35,10029,10030],{},"Situations that do not qualify: chasing a sign-up bonus you will not use, opening an account because an app looked appealing, or splitting holdings across brokers in the belief that this diversifies investment risk. It does not — the same stock at two brokers is still the same stock.",[39,10032,10034],{"id":10033},"should-i-keep-all-my-money-in-one-brokerage-account","Should I keep all my money in one brokerage account?",[35,10036,10037],{},"Keeping everything in one brokerage account is reasonable if that broker covers the markets, account types and costs you need, and it is the simplest way to see your whole portfolio in one place.",[35,10039,10040],{},"Broker protection schemes make single-broker concentration less alarming than it sounds. In the US, SIPC member brokerages cover up to $500,000 per customer, including a $250,000 limit for cash. That protection applies if the brokerage fails and customer assets are missing — it does not cover investment losses, so a stock falling by half is never a SIPC matter. Coverage limits and schemes differ by country, so check what applies where your account is held.",[35,10042,10043],{},"The case for splitting is mostly about continuity rather than loss. If a broker suspends withdrawals, has an outage during a volatile week, or takes weeks to resolve an account issue, a second account means you are not locked out entirely.",[39,10045,10047],{"id":10046},"how-do-you-track-performance-across-multiple-brokerage-accounts","How do you track performance across multiple brokerage accounts?",[35,10049,10050],{},"Tracking performance across multiple brokerage accounts requires combining every transaction from every account into a single record, valued in one currency, and calculating the return from that combined history. There is no shortcut through the individual account statements.",[35,10052,10053,10054,10056],{},"Doing it manually means exporting transactions from each broker, normalising the formats, converting foreign currency at each transaction date, and recalculating returns whenever anything changes. Many investors attempt it with a ",[219,10055,8456],{"href":8455}," and abandon it within a few months, usually at the first dividend reinvestment or currency conversion.",[35,10058,10059,10060,10064],{},"This is the specific problem Portseido was built for. It imports transactions from brokers or from a CSV, consolidates holdings across multiple accounts and currencies into a single portfolio, and calculates time-weighted and money-weighted returns for the combined result — the same job a ",[219,10061,10063],{"href":10062},"/portfolio-manager-software/","portfolio manager software"," tool does, without maintaining the spreadsheet yourself.",[39,10066,320],{"id":319},[140,10068,10070],{"id":10069},"does-having-multiple-brokerage-accounts-hurt-your-credit-score","Does having multiple brokerage accounts hurt your credit score?",[35,10072,10073],{},"No. Opening a brokerage account is not a credit application, and brokerage accounts are not reported to credit bureaus the way loans and credit cards are. Brokers may run an identity check when you open an account, but this is generally a soft enquiry that does not affect your score. Margin accounts can be an exception, so check the broker's terms.",[140,10075,10077],{"id":10076},"is-it-safe-to-keep-more-than-500000-at-one-brokerage","Is it safe to keep more than $500,000 at one brokerage?",[35,10079,10080],{},"Holding more than the SIPC limit at one US brokerage is common and not inherently unsafe, since customer securities are held separately from the broker's own assets and are normally transferred intact if the broker fails. The protection exists for the case where assets are missing. Investors uncomfortable with the exposure typically split across two brokerages rather than reduce their investments.",[140,10082,10084],{"id":10083},"can-i-transfer-holdings-between-brokerage-accounts-without-selling","Can I transfer holdings between brokerage accounts without selling?",[35,10086,10087],{},"Most brokers support an in-kind transfer, which moves your securities to another broker without selling them, so no gain is realised. Transfers can take one to several weeks, may carry an outgoing fee, and do not always carry cost basis history across cleanly. Record your original purchase prices before initiating one.",[140,10089,10091],{"id":10090},"how-many-accounts-is-too-many","How many accounts is too many?",[35,10093,10094],{},"Too many is the point where you no longer know your total position without a lengthy reconciliation, or where accounts exist for no reason you can articulate. For most people this arrives around four or five. The warning sign is not the count but the symptom: being unable to answer \"what is my largest holding?\" without opening several apps.",[39,10096,10098],{"id":10097},"how-to-track-multiple-investment-accounts-in-portseido","How to track multiple investment accounts in Portseido",[35,10100,10101],{},"Portseido is a portfolio tracker built around the problem of holdings spread across several brokers. It consolidates positions from multiple accounts and multiple currencies into one portfolio, calculates time-weighted and money-weighted returns for the combined whole, tracks cost basis, dividends, dividend income history and yield on cost, and shows asset allocation and drawdown so you can see the concentration your individual account screens hide. Transactions can be imported directly from a range of brokers or uploaded from a CSV, and it runs on the web plus iOS and Android.",[35,10103,10104,10105],{},"Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations, and it does not handle tax filing or replace your brokers' statements. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,10106,363],{"href":361,"rel":10107},[240],{"title":400,"searchDepth":401,"depth":401,"links":10109},[10110,10111,10112,10113,10114,10115,10116,10117,10118,10124],{"id":41,"depth":404,"text":42},{"id":9841,"depth":404,"text":9802},{"id":9853,"depth":404,"text":9854},{"id":9866,"depth":404,"text":9867},{"id":9941,"depth":404,"text":9942},{"id":9997,"depth":404,"text":9998},{"id":10033,"depth":404,"text":10034},{"id":10046,"depth":404,"text":10047},{"id":319,"depth":404,"text":320,"children":10119},[10120,10121,10122,10123],{"id":10069,"depth":401,"text":10070},{"id":10076,"depth":401,"text":10077},{"id":10083,"depth":401,"text":10084},{"id":10090,"depth":401,"text":10091},{"id":10097,"depth":404,"text":10098},"You can legally hold as many investment accounts as you want. Multiple accounts add flexibility, at the cost of a fragmented view of your whole portfolio.",{},"/blog/should-you-have-multiple-investment-accounts","2023-11-28",{"title":9802,"description":10125},"blog/should-you-have-multiple-investment-accounts","ZFZqgy3_tmxoSSqPzb7OHjBVWMcAHpE6iaKNhBz9zy4",{"id":10133,"title":10134,"body":10135,"description":10531,"extension":428,"meta":10532,"navigation":430,"path":10533,"publishedAt":10534,"seo":10535,"seo_description":434,"seo_title":434,"social_image":10432,"stem":10536,"updatedAt":436,"__hash__":10537},"blog/blog/should-you-use-simple-return-time-weighted-or-money-weighted.md","Time-Weighted (TWR) vs Money-Weighted Return (MWR)",{"type":7,"value":10136,"toc":10513},[10137,10140,10143,10145,10162,10166,10169,10224,10227,10231,10234,10247,10256,10259,10262,10266,10269,10282,10290,10297,10306,10311,10315,10318,10321,10330,10333,10335,10338,10351,10360,10369,10384,10392,10396,10399,10402,10405,10409,10412,10415,10419,10422,10434,10456,10462,10464,10468,10471,10475,10485,10489,10492,10496,10499,10503,10506,10511],[35,10138,10139],{},"Simple return, time-weighted return and money-weighted return are three ways of turning the same portfolio into a percentage, and they routinely disagree. The reason they disagree is deposits and withdrawals: each method treats new money differently, so choosing between them is really a choice about whether you want to measure the investments, the investor, or just the bookkeeping.",[35,10141,10142],{},"Here is the example used throughout this article. You invest $1,000 and a year later it is worth $1,500, a gain of $500. You then add a $2,000 bonus, taking the portfolio to $3,500. A week after that the portfolio is up another 1%, at $3,535. What is your return?",[39,10144,42],{"id":41},[44,10146,10147,10150,10153,10156,10159],{},[47,10148,10149],{},"Simple return divides total gain by total invested capital, so it ignores how long the money was invested and drops sharply the moment new cash is added.",[47,10151,10152],{},"Time-weighted return splits the period at every cash flow, measures each sub-period separately and chains the results, so deposits and withdrawals cannot distort it.",[47,10154,10155],{},"Money-weighted return is the rate that discounts every dated cash flow back to the amount invested, so it counts both the size and the timing of contributions.",[47,10157,10158],{},"The three methods give the same answer only when no money enters or leaves the portfolio after the initial investment.",[47,10160,10161],{},"Use time-weighted return when you do not control the timing of cash flows, and money-weighted return when you do and want that judgement graded.",[39,10163,10165],{"id":10164},"what-is-the-difference-between-simple-return-time-weighted-return-and-money-weighted-return","What is the difference between simple return, time-weighted return and money-weighted return?",[35,10167,10168],{},"Simple return measures bookkeeping gain, time-weighted return measures how the investments performed, and money-weighted return measures what the investor earned. The difference between them is entirely in how each one treats deposits and withdrawals.",[80,10170,10171,10186],{},[83,10172,10173],{},[86,10174,10175,10177,10180,10183],{},[89,10176,6246],{},[89,10178,10179],{},"Counts cash flow size",[89,10181,10182],{},"Counts cash flow timing",[89,10184,10185],{},"What it measures",[96,10187,10188,10201,10213],{},[86,10189,10190,10192,10195,10198],{},[101,10191,7949],{},[101,10193,10194],{},"Yes",[101,10196,10197],{},"No",[101,10199,10200],{},"The gain relative to what you put in",[86,10202,10203,10205,10207,10210],{},[101,10204,6503],{},[101,10206,10197],{},[101,10208,10209],{},"Only as sub-period boundaries",[101,10211,10212],{},"How the investments performed",[86,10214,10215,10217,10219,10221],{},[101,10216,6590],{},[101,10218,10194],{},[101,10220,10194],{},[101,10222,10223],{},"What you personally earned",[35,10225,10226],{},"Applied to the same portfolio, $1,000 that grew to $1,500 over a year, then took a $2,000 deposit and rose 1% in a week to $3,535, the three methods give 17.83%, 51.5% and roughly 50.7% a year respectively. None of the three is wrong; they are answers to three different questions.",[39,10228,10230],{"id":10229},"what-is-simple-return-sr","What is simple return (SR)?",[35,10232,10233],{},"Simple return (SR) is the total gain on a portfolio divided by the total capital invested in it, with no adjustment for how long that capital was invested.",[10,10235,12,10236,12,10239,12,10242],{},[14,10237],{"srcSet":10238,"type":17},"/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/simple_return_calculation.avif",[14,10240],{"srcSet":10241,"type":21},"/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/simple_return_calculation.webp",[23,10243],{"alt":10244,"src":10245,"style":3195,"width":3196,"height":10246,"decoding":30},"Simple Return Calculation","/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/simple_return_calculation.png",182,[2246,10248,10250],{"className":2248,"code":10249,"language":2250,"meta":400,"style":400},"Simple Return = Total Gain / Total Invested Capital\n",[2252,10251,10252],{"__ignoreMap":400},[2255,10253,10254],{"class":2257,"line":2258},[2255,10255,10249],{},[35,10257,10258],{},"Follow the running example through simple return and the problem appears immediately. After one year, $1,000 has become $1,500, so simple return is 500 / 1,000 = 50%. Add the $2,000 bonus and total invested capital becomes $3,000 while the gain is still $500, so simple return falls to 500 / 3,000 = 16.67%. A week later the portfolio is at $3,535, so the gain is $535 and simple return is 535 / 3,000 = 17.83%.",[35,10260,10261],{},"Nothing about the investing got worse in that moment. Simple return collapsed because it does not care how long the capital has been in the portfolio, and the last $2,000 had been there for a week. When money moves in and out, simple return is a bookkeeping figure rather than a measure of investment ability.",[39,10263,10265],{"id":10264},"what-is-time-weighted-return-twr","What is time-weighted return (TWR)?",[35,10267,10268],{},"Time-weighted return (TWR) ignores the size of the portfolio and computes the return of each sub-period separately, then compounds those sub-period returns into a single figure for the whole period.",[10,10270,12,10271,12,10274,12,10277],{},[14,10272],{"srcSet":10273,"type":17},"/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/time_weighted_return_calculation.avif",[14,10275],{"srcSet":10276,"type":21},"/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/time_weighted_return_calculation.webp",[23,10278],{"alt":10279,"src":10280,"style":3195,"width":3196,"height":10281,"loading":670,"decoding":30},"Time-Weighted Return Calculation","/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/time_weighted_return_calculation.png",123,[2246,10283,10284],{"className":2248,"code":8014,"language":2250,"meta":400,"style":400},[2252,10285,10286],{"__ignoreMap":400},[2255,10287,10288],{"class":2257,"line":2258},[2255,10289,8014],{},[35,10291,10292,10293,10296],{},"Each ",[2252,10294,10295],{},"R"," is the return of one sub-period, with the sub-periods split at every deposit or withdrawal. In the running example there are two sub-periods: the first year, in which $1,000 became $1,500 for a return of 50%, and the following week, in which the portfolio rose 1%.",[2246,10298,10300],{"className":2248,"code":10299,"language":2250,"meta":400,"style":400},"TWR = (1 + 0.50) x (1 + 0.01) - 1 = 0.515 = 51.5%\n",[2252,10301,10302],{"__ignoreMap":400},[2255,10303,10304],{"class":2257,"line":2258},[2255,10305,10299],{},[35,10307,10308,10309,733],{},"Over 372 days that annualises to about 50.3% a year. Time-weighted return is the better measure of investing ability here, because it averages performance over time regardless of how much money happened to be invested. You can also try our ",[219,10310,6581],{"href":6580},[39,10312,10314],{"id":10313},"what-are-the-limitations-of-time-weighted-return","What are the limitations of time-weighted return?",[35,10316,10317],{},"The limitation of time-weighted return is that by ignoring portfolio size it can report a healthy gain on a portfolio that actually lost money.",[35,10319,10320],{},"Take the same portfolio, now worth $3,500 after a $1,000 start and a $2,000 deposit, and suppose it falls 20% over the following year to $2,800. The investor has paid in $3,000 in total and holds $2,800, a cash loss of $200. Time-weighted return over the two years is nevertheless positive:",[2246,10322,10324],{"className":2248,"code":10323,"language":2250,"meta":400,"style":400},"TWR = (1 + 0.50) x (1 - 0.20) - 1 = 0.20 = 20%\n",[2252,10325,10326],{"__ignoreMap":400},[2255,10327,10328],{"class":2257,"line":2258},[2255,10329,10323],{},[35,10331,10332],{},"The 50% gain came when only $1,000 was invested and the 20% loss came when $3,500 was, but time-weighted return gives both periods equal weight. That is the correct behaviour when you are grading a manager who does not control the deposits, and misleading when you are grading your own outcome.",[39,10334,7063],{"id":7062},[35,10336,10337],{},"Money-weighted return (MWR), also called the dollar-weighted return or the internal rate of return (IRR), is the single rate of return at which the discounted value of everything you paid in equals the discounted value of everything you got back, including the portfolio's current value.",[10,10339,12,10340,12,10343,12,10346],{},[14,10341],{"srcSet":10342,"type":17},"/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/money_weighted_return_calculation.avif",[14,10344],{"srcSet":10345,"type":21},"/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/money_weighted_return_calculation.webp",[23,10347],{"alt":10348,"src":10349,"style":3195,"width":3196,"height":10350,"loading":670,"decoding":30},"Money-Weighted Return Calculation","/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/money_weighted_return_calculation.png",178,[2246,10352,10354],{"className":2248,"code":10353,"language":2250,"meta":400,"style":400},"Sum of Cash Invested_k / (1 + R)^(Days_k / 365) = Sum of Cash Received_k / (1 + R)^(Days_k / 365)\n",[2252,10355,10356],{"__ignoreMap":400},[2255,10357,10358],{"class":2257,"line":2258},[2255,10359,10353],{},[35,10361,10362,10365,10366,10368],{},[2252,10363,10364],{},"Days_k"," is the number of days from the first cash flow to cash flow k, and ",[2252,10367,10295],{}," is the annual rate being solved for. In the running example, $1,000 goes in on day 0, $2,000 goes in on day 365, and the portfolio is worth $3,535 on day 372:",[2246,10370,10372],{"className":2248,"code":10371,"language":2250,"meta":400,"style":400},"1000/(1+R)^(0/365) + 2000/(1+R)^(365/365) = 3535/(1+R)^(372/365)\nR = 50.7% a year\n",[2252,10373,10374,10379],{"__ignoreMap":400},[2255,10375,10376],{"class":2257,"line":2258},[2255,10377,10378],{},"1000/(1+R)^(0/365) + 2000/(1+R)^(365/365) = 3535/(1+R)^(372/365)\n",[2255,10380,10381],{"class":2257,"line":404},[2255,10382,10383],{},"R = 50.7% a year\n",[35,10385,10386,10387,10389,10390,733],{},"That is slightly above the annualised time-weighted return of 50.3%, because the strong final week, worth about 68% annualised, happened while the larger balance was invested and money-weighted return gives it more weight. There is no formula that solves for ",[2252,10388,10295],{}," directly, so it is found numerically, in practice by the XIRR function in a spreadsheet or by our ",[219,10391,6649],{"href":6648},[39,10393,10395],{"id":10394},"what-are-the-limitations-of-money-weighted-return","What are the limitations of money-weighted return?",[35,10397,10398],{},"The limitation of money-weighted return is that it grades the timing of cash flows even when those cash flows had nothing to do with investing.",[35,10400,10401],{},"Money-weighted return gives the most weight to the periods when the portfolio was largest, which is fair if you deliberately raised cash and deployed it when opportunities appeared. It is not fair when the deposits were driven by your payroll. An investor who invests a work bonus the day it arrives posts a high money-weighted return whenever markets rise afterwards, and a low one when they do not, without a single decision of theirs changing.",[35,10403,10404],{},"Recomputing these figures by hand after every trade, dividend and transfer is where most investors give up. Portseido calculates simple return, time-weighted return and money-weighted return from your transaction history across brokers and currencies, so all three sit side by side without spreadsheet maintenance.",[39,10406,10408],{"id":10407},"when-do-simple-return-time-weighted-return-and-money-weighted-return-agree","When do simple return, time-weighted return and money-weighted return agree?",[35,10410,10411],{},"Simple return, time-weighted return and money-weighted return give the same answer when no money enters or leaves the portfolio after the initial investment.",[35,10413,10414],{},"With a single deposit at the start, there is only one sub-period to chain, only one cash flow to discount, and only one figure for invested capital, so all three methods reduce to the same calculation. Every difference between them is created by later cash flows.",[39,10416,10418],{"id":10417},"which-return-method-should-you-use","Which return method should you use?",[35,10420,10421],{},"Use time-weighted return when you do not control the timing of cash flows, and money-weighted return when you do and want those decisions counted in the result.",[10,10423,12,10424,12,10427,12,10430],{},[14,10425],{"srcSet":10426,"type":17},"/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/which_return_should_you_use.avif",[14,10428],{"srcSet":10429,"type":21},"/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/which_return_should_you_use.webp",[23,10431],{"alt":10134,"src":10432,"style":624,"width":625,"height":10433,"loading":670,"decoding":30},"/blog_images/should-you-use-simple-return-time-weighted-or-money-weighted/which_return_should_you_use.png",376,[44,10435,10436,10441,10450],{},[47,10437,10438,10440],{},[287,10439,3940],{}," suits an investor who chooses when to deploy capital, for example by holding cash back until valuations improve. It grades the whole decision, including timing.",[47,10442,10443,10445,10446,10449],{},[287,10444,3915],{}," suits an investor whose contributions are fixed by a salary or a schedule, and is the correct basis for ",[219,10447,10448],{"href":2137},"comparing a portfolio against an index or ETF",", since an index has no cash flows.",[47,10451,10452,10455],{},[287,10453,10454],{},"Simple return"," suits bookkeeping: what did I put in, what is it worth now.",[35,10457,10458,10459,733],{},"The two questions are different enough that many investors track both. If you want to know how your investments did over a period, look at time-weighted return; if you want to know what your money earned, look at money-weighted return. Both are among ",[219,10460,10461],{"href":1030},"the four standard methods for calculating portfolio return",[39,10463,320],{"id":319},[140,10465,10467],{"id":10466},"which-return-figure-does-my-broker-show-me","Which return figure does my broker show me?",[35,10469,10470],{},"Most brokerage statements show a simple return, the gain divided by the amount invested, because it is the easiest figure to derive from account records. Funds and managed accounts usually report time-weighted return, since that is the reporting standard for performance. Check the basis before comparing two figures, because a difference in method can be larger than a difference in performance.",[140,10472,10474],{"id":10473},"should-dividends-be-included-in-all-three-methods","Should dividends be included in all three methods?",[35,10476,10477,10478,10480,10481,10484],{},"Yes. Dividends and interest are part of the return in every method, and leaving them out understates income-paying holdings. In simple return they belong in the total gain, in ",[219,10479,5508],{"href":3914}," they belong in the sub-period's ending value, and in ",[219,10482,10483],{"href":3939},"money-weighted return"," they are entered as a positive cash flow on the date they were paid.",[140,10486,10488],{"id":10487},"do-these-returns-need-to-be-annualised-before-comparing-them","Do these returns need to be annualised before comparing them?",[35,10490,10491],{},"Yes, whenever the periods differ. Money-weighted return is already an annual rate because it is solved as one, while simple return and time-weighted return are cumulative over whatever period you measured. Convert a cumulative figure with ((1 + Return) ^ (1 / Number of Years)) - 1 before setting it beside an annual benchmark figure.",[140,10493,10495],{"id":10494},"can-time-weighted-and-money-weighted-return-point-in-opposite-directions","Can time-weighted and money-weighted return point in opposite directions?",[35,10497,10498],{},"Yes, and it is a useful signal. A positive time-weighted return with a negative money-weighted return means the investments performed adequately but most of your money arrived before the weaker stretches. The reverse means good timing rescued mediocre holdings. Seeing both figures separates the quality of what you own from when you bought it.",[39,10500,10502],{"id":10501},"how-to-see-all-three-returns-in-portseido","How to see all three returns in Portseido",[35,10504,10505],{},"Portseido is a portfolio tracker that reports simple return, time-weighted return and money-weighted return for the same portfolio, so you can read all three without choosing one in advance. It consolidates holdings across brokers and currencies, tracks cost basis, dividends and yield on cost, shows allocation and drawdown, and benchmarks the portfolio against indices and ETFs. Transactions import from brokers or from a CSV, which is what keeps the cash-flow dates behind these calculations accurate.",[35,10507,1306,10508],{},[219,10509,363],{"href":361,"rel":10510},[240],[2524,10512,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":10514},[10515,10516,10517,10518,10519,10520,10521,10522,10523,10524,10530],{"id":41,"depth":404,"text":42},{"id":10164,"depth":404,"text":10165},{"id":10229,"depth":404,"text":10230},{"id":10264,"depth":404,"text":10265},{"id":10313,"depth":404,"text":10314},{"id":7062,"depth":404,"text":7063},{"id":10394,"depth":404,"text":10395},{"id":10407,"depth":404,"text":10408},{"id":10417,"depth":404,"text":10418},{"id":319,"depth":404,"text":320,"children":10525},[10526,10527,10528,10529],{"id":10466,"depth":401,"text":10467},{"id":10473,"depth":401,"text":10474},{"id":10487,"depth":401,"text":10488},{"id":10494,"depth":401,"text":10495},{"id":10501,"depth":404,"text":10502},"Simple return, time-weighted return and money-weighted return give three different numbers for the same portfolio. Here is what each measures and when to use it.",{},"/blog/should-you-use-simple-return-time-weighted-or-money-weighted","2022-07-11",{"title":10134,"description":10531},"blog/should-you-use-simple-return-time-weighted-or-money-weighted","HU8EbgUG_p0otFVX_tKNFamw6ILSUUgmn1QypZ0D83g",{"id":10539,"title":10540,"body":10541,"description":11242,"extension":428,"meta":11243,"navigation":430,"path":11244,"publishedAt":11245,"seo":11246,"seo_description":434,"seo_title":434,"social_image":10554,"stem":11247,"updatedAt":436,"__hash__":11248},"blog/blog/stock-tracking-spreadsheet.md","Stock Investment Tracking using Google Sheets",{"type":7,"value":10542,"toc":11225},[10543,10556,10563,10565,10589,10593,10599,10608,10611,10617,10634,10643,10647,10652,10806,10809,10815,10822,10844,10848,10851,10854,10934,10937,10941,10944,10974,10977,10983,10995,11005,11009,11012,11059,11062,11066,11075,11088,11092,11095,11140,11149,11151,11155,11165,11169,11174,11178,11194,11198,11205,11209,11217,11223],[10,10544,12,10545,12,10548,12,10551],{},[14,10546],{"srcSet":10547,"type":17},"/blog_images/stock-tracking-spreadsheet/stock-tracking-spreadsheet-cover.avif",[14,10549],{"srcSet":10550,"type":21},"/blog_images/stock-tracking-spreadsheet/stock-tracking-spreadsheet-cover.webp",[23,10552],{"alt":10553,"src":10554,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":10555},"Stock tracking spreadsheet using Google Finance","/blog_images/stock-tracking-spreadsheet/stock-tracking-spreadsheet-cover.png",[33],[35,10557,10558,10559,10562],{},"A stock tracking spreadsheet is a free, fully customisable way to follow a portfolio, and in Google Sheets it is built on one function: ",[2252,10560,10561],{},"GOOGLEFINANCE",". This guide covers the attributes that function can pull, the columns a working tracker needs, the formulas that turn transactions into performance, and the specific things a spreadsheet cannot do.",[39,10564,42],{"id":41},[44,10566,10567,10573,10578,10583,10586],{},[47,10568,10569,10570,10572],{},"Google Sheets tracks stocks through the ",[2252,10571,10561],{}," function, which pulls quotes and fundamentals such as price, P/E, EPS, market capitalisation, beta and 52-week high and low into a cell.",[47,10574,10575,10577],{},[2252,10576,10561],{}," prices for US exchanges are delayed by up to 20 minutes and are explicitly not for trading purposes, so a Google Sheets tracker is a monitoring tool rather than a live one.",[47,10579,10580,10582],{},[2252,10581,10561],{}," has no dividend-per-share or dividend-yield attribute for individual stocks, so dividend income in a Google Sheets tracker has to be entered by hand.",[47,10584,10585],{},"A useful stock tracking spreadsheet stores one row per transaction, not one row per holding, because cost basis, realised gains and money-weighted return all need the individual trades.",[47,10587,10588],{},"A stock tracking spreadsheet breaks down on multi-currency holdings, corporate actions such as splits and spin-offs, and accounts held at several brokers, which is where a dedicated portfolio tracker earns its place.",[39,10590,10592],{"id":10591},"how-do-you-track-stocks-in-google-sheets","How do you track stocks in Google Sheets?",[35,10594,10595,10596,10598],{},"You track stocks in Google Sheets by putting ticker symbols in one column and using the ",[2252,10597,10561],{}," function in adjacent columns to pull live data for each of them. The function takes a ticker and an attribute name and returns that value into the cell.",[2246,10600,10602],{"className":2248,"code":10601,"language":2250,"meta":400,"style":400},"=GOOGLEFINANCE(ticker, attribute, [start_date], [end_date], [interval])\n",[2252,10603,10604],{"__ignoreMap":400},[2255,10605,10606],{"class":2257,"line":2258},[2255,10607,10601],{},[35,10609,10610],{},"The simplest form fetches the current price of a stock:",[2246,10612,10615],{"className":10613,"code":10614,"language":6782},[6780],"=GOOGLEFINANCE(\"AAPL\", \"price\")\n",[2252,10616,10614],{"__ignoreMap":400},[35,10618,10619,10620,10622,10623,10626,10627,10630,10631,733],{},"Point the first argument at a cell rather than a hard-coded string and the sheet becomes reusable: if A2 contains ",[2252,10621,9090],{},", then ",[2252,10624,10625],{},"=GOOGLEFINANCE(A2, \"price\")"," returns Apple's price, and copying the formula down prices every ticker in the list. Qualify ambiguous or non-US tickers with the exchange, as in ",[2252,10628,10629],{},"\"NASDAQ:AAPL\""," or ",[2252,10632,10633],{},"\"LON:VOD\"",[35,10635,10636,10637,10639,10640,733],{},"Two limits matter before you build anything on top of it. ",[2252,10638,10561],{}," data for US exchanges is delayed by up to 20 minutes and Google states it is not for trading purposes, and it covers only a subset of the world's listings, so some funds, bonds and smaller foreign listings return ",[2252,10641,10642],{},"#N/A",[39,10644,10646],{"id":10645},"what-data-can-the-googlefinance-function-pull","What data can the GOOGLEFINANCE function pull?",[35,10648,7109,10649,10651],{},[2252,10650,10561],{}," function pulls current quote data, a handful of fundamentals, and historical price series, selected by the attribute string you pass as the second argument.",[80,10653,10654,10667],{},[83,10655,10656],{},[86,10657,10658,10661,10664],{},[89,10659,10660],{},"Attribute",[89,10662,10663],{},"Returns",[89,10665,10666],{},"Example",[96,10668,10669,10684,10699,10714,10728,10743,10757,10776,10791],{},[86,10670,10671,10676,10679],{},[101,10672,10673],{},[2252,10674,10675],{},"price",[101,10677,10678],{},"Current market price, delayed up to 20 minutes",[101,10680,10681],{},[2252,10682,10683],{},"=GOOGLEFINANCE(\"AAPL\", \"price\")",[86,10685,10686,10691,10694],{},[101,10687,10688],{},[2252,10689,10690],{},"pe",[101,10692,10693],{},"Price-to-earnings ratio",[101,10695,10696],{},[2252,10697,10698],{},"=GOOGLEFINANCE(\"AAPL\", \"pe\")",[86,10700,10701,10706,10709],{},[101,10702,10703],{},[2252,10704,10705],{},"eps",[101,10707,10708],{},"Earnings per share",[101,10710,10711],{},[2252,10712,10713],{},"=GOOGLEFINANCE(\"AAPL\", \"eps\")",[86,10715,10716,10721,10723],{},[101,10717,10718],{},[2252,10719,10720],{},"marketcap",[101,10722,5396],{},[101,10724,10725],{},[2252,10726,10727],{},"=GOOGLEFINANCE(\"AAPL\", \"marketcap\")",[86,10729,10730,10735,10738],{},[101,10731,10732],{},[2252,10733,10734],{},"volume",[101,10736,10737],{},"Current trading volume",[101,10739,10740],{},[2252,10741,10742],{},"=GOOGLEFINANCE(\"AAPL\", \"volume\")",[86,10744,10745,10749,10752],{},[101,10746,10747],{},[2252,10748,5542],{},[101,10750,10751],{},"Beta, a measure of volatility against the market",[101,10753,10754],{},[2252,10755,10756],{},"=GOOGLEFINANCE(\"AAPL\", \"beta\")",[86,10758,10759,10768,10771],{},[101,10760,10761,10764,10765],{},[2252,10762,10763],{},"high52"," / ",[2252,10766,10767],{},"low52",[101,10769,10770],{},"52-week high and 52-week low",[101,10772,10773],{},[2252,10774,10775],{},"=GOOGLEFINANCE(\"AAPL\", \"high52\")",[86,10777,10778,10783,10786],{},[101,10779,10780],{},[2252,10781,10782],{},"changepct",[101,10784,10785],{},"Percentage change since the previous close",[101,10787,10788],{},[2252,10789,10790],{},"=GOOGLEFINANCE(\"AAPL\", \"changepct\")",[86,10792,10793,10798,10801],{},[101,10794,10795],{},[2252,10796,10797],{},"currency",[101,10799,10800],{},"Currency the security trades in",[101,10802,10803],{},[2252,10804,10805],{},"=GOOGLEFINANCE(\"AAPL\", \"currency\")",[35,10807,10808],{},"Historical prices need three more arguments: a start date, an end date and an interval. This returns Apple's daily closing prices for the whole of 2022:",[2246,10810,10813],{"className":10811,"code":10812,"language":6782},[6780],"=GOOGLEFINANCE(\"AAPL\", \"close\", DATE(2022,1,1), DATE(2022,12,31), \"DAILY\")\n",[2252,10814,10812],{"__ignoreMap":400},[35,10816,10817,10818,10821],{},"A historical query returns an array with a header row rather than a single value, so leave empty cells below and to the right of it or the formula returns a ",[2252,10819,10820],{},"#REF!"," spill error.",[35,10823,10824,10825,10827,10828,10831,10832,10834,10835,10837,10838,10843],{},"One attribute people expect and do not get is dividends. ",[2252,10826,10561],{}," exposes no dividend-per-share or dividend-yield attribute for individual stocks; the ",[2252,10829,10830],{},"yieldpct"," attribute works only for mutual funds. Any dividend column in a Google Sheets stock tracker is therefore typed in by hand from your broker statements, which matters if you are tracking ",[219,10833,222],{"href":221}," or building a ",[219,10836,2024],{"href":2023}," view. Google's own ",[219,10839,10842],{"href":10840,"rel":10841},"https://support.google.com/docs/answer/3093281",[240],"GOOGLEFINANCE documentation"," lists the full attribute set.",[39,10845,10847],{"id":10846},"what-columns-should-a-stock-tracking-spreadsheet-have","What columns should a stock tracking spreadsheet have?",[35,10849,10850],{},"A stock tracking spreadsheet should have one row per transaction rather than one row per holding, because cost basis, realised gains and return calculations all need the individual buys and sells with their dates.",[35,10852,10853],{},"Build the transaction log with these columns:",[80,10855,10856,10866],{},[83,10857,10858],{},[86,10859,10860,10863],{},[89,10861,10862],{},"Column",[89,10864,10865],{},"Why it is needed",[96,10867,10868,10875,10886,10894,10902,10910,10918,10926],{},[86,10869,10870,10872],{},[101,10871,4448],{},[101,10873,10874],{},"Required for any time-based return, and for holding-period rules",[86,10876,10877,10880],{},[101,10878,10879],{},"Ticker and exchange",[101,10881,10882,10883,10885],{},"The lookup key for every ",[2252,10884,10561],{}," formula",[86,10887,10888,10891],{},[101,10889,10890],{},"Action",[101,10892,10893],{},"Buy, sell, dividend, deposit or withdrawal",[86,10895,10896,10899],{},[101,10897,10898],{},"Quantity",[101,10900,10901],{},"Shares transacted, negative or flagged for sells",[86,10903,10904,10907],{},[101,10905,10906],{},"Price per share",[101,10908,10909],{},"The traded price, in the currency of the trade",[86,10911,10912,10915],{},[101,10913,10914],{},"Currency",[101,10916,10917],{},"Essential the moment you hold anything outside your home currency",[86,10919,10920,10923],{},[101,10921,10922],{},"Fees and commissions",[101,10924,10925],{},"Part of cost basis on a buy, deducted from proceeds on a sell",[86,10927,10928,10931],{},[101,10929,10930],{},"Account or broker",[101,10932,10933],{},"Lets you filter one broker or see everything combined",[35,10935,10936],{},"A second summary sheet then aggregates that log into one row per holding: quantity held, average cost, current price, market value, unrealised gain and portfolio weight.",[39,10938,10940],{"id":10939},"what-formulas-should-a-stock-portfolio-tracker-use","What formulas should a stock portfolio tracker use?",[35,10942,10943],{},"A stock portfolio tracker in Google Sheets needs five formulas: market value, cost basis, unrealised gain, portfolio weight, and a return figure. Everything else on a tracker dashboard is a variation on these.",[2246,10945,10947],{"className":2248,"code":10946,"language":2250,"meta":400,"style":400},"Market Value        = GOOGLEFINANCE(Ticker, \"price\") * Quantity\nCost Basis          = (Quantity * Price Per Share) + Fees\nUnrealised Gain %   = (Market Value - Cost Basis) / Cost Basis\nPortfolio Weight    = Market Value / SUM(All Market Values)\nMoney-Weighted Ret. = XIRR(Cash Flow Range, Date Range)\n",[2252,10948,10949,10954,10959,10964,10969],{"__ignoreMap":400},[2255,10950,10951],{"class":2257,"line":2258},[2255,10952,10953],{},"Market Value        = GOOGLEFINANCE(Ticker, \"price\") * Quantity\n",[2255,10955,10956],{"class":2257,"line":404},[2255,10957,10958],{},"Cost Basis          = (Quantity * Price Per Share) + Fees\n",[2255,10960,10961],{"class":2257,"line":401},[2255,10962,10963],{},"Unrealised Gain %   = (Market Value - Cost Basis) / Cost Basis\n",[2255,10965,10966],{"class":2257,"line":5870},[2255,10967,10968],{},"Portfolio Weight    = Market Value / SUM(All Market Values)\n",[2255,10970,10971],{"class":2257,"line":5876},[2255,10972,10973],{},"Money-Weighted Ret. = XIRR(Cash Flow Range, Date Range)\n",[35,10975,10976],{},"Written as spreadsheet formulas with the ticker in A2, quantity in B2, cost basis in C2 and market value in D2:",[2246,10978,10981],{"className":10979,"code":10980,"language":6782},[6780],"=GOOGLEFINANCE(A2, \"price\") * B2\n=(D2 - C2) / C2\n=D2 / SUM($D$2:$D$100)\n=XIRR(F2:F100, E2:E100)\n",[2252,10982,10980],{"__ignoreMap":400},[35,10984,10985,10988,10989,10991,10992,10994],{},[2252,10986,10987],{},"XIRR"," is the one that does real work. It solves for the ",[219,10990,10483],{"href":3939},", the single rate that makes every dated cash flow plus the ending value net to zero, so it accounts for deposits and withdrawals. Enter money you put in as negative and dividends, sale proceeds and the final value as positive, or the sign convention inverts the answer. Stripping contribution timing out instead gives a ",[219,10993,5508],{"href":3914},", which needs the portfolio value recorded at every cash flow date and is far more manual.",[35,10996,10997,10998,11000,11001,11004],{},"Holding more than one currency adds a conversion step. ",[2252,10999,10561],{}," supplies the rate, for example ",[2252,11002,11003],{},"=GOOGLEFINANCE(\"CURRENCY:USDEUR\")",", but a rate pulled today converts a purchase made three years ago at the wrong rate. Correct multi-currency cost basis needs the rate on each transaction date, stored per row.",[39,11006,11008],{"id":11007},"what-are-the-limitations-of-a-stock-tracking-spreadsheet","What are the limitations of a stock tracking spreadsheet?",[35,11010,11011],{},"The main limitation of a stock tracking spreadsheet is that it holds only the data you type into it, so every event that changes a position, other than a price move, is manual work you have to remember to do.",[44,11013,11014,11020,11029,11035,11044,11053],{},[47,11015,11016,11019],{},[287,11017,11018],{},"Corporate actions break it silently."," A 4-for-1 stock split, a spin-off or a merger changes your share count and cost basis. The price column updates automatically; your quantity column does not, so the tracker keeps reporting a wrong market value until you notice.",[47,11021,11022,11025,11026,11028],{},[287,11023,11024],{},"Dividends are entirely manual."," With no dividend attribute in ",[2252,11027,10561],{}," for stocks, every payment has to be entered from a statement, and missing them understates total return.",[47,11030,11031,11034],{},[287,11032,11033],{},"Multiple brokers mean multiple imports."," Each broker exports a different CSV layout, so consolidating three accounts means three separate reformatting jobs every time.",[47,11036,11037,11040,11041,11043],{},[287,11038,11039],{},"Multi-currency needs historical FX."," Converting at today's rate rather than the trade-date rate misstates ",[219,11042,9984],{"href":6324}," and gain for every foreign holding.",[47,11045,11046,11049,11050,11052],{},[287,11047,11048],{},"Prices are delayed and sometimes missing."," US quotes lag by up to 20 minutes, and unsupported listings return ",[2252,11051,10642],{},", which then propagates through every formula that references them.",[47,11054,11055,11058],{},[287,11056,11057],{},"Formulas rot."," Inserting a row, dragging a fill handle one cell too far or renaming a tab quietly breaks a range, and a spreadsheet gives no warning that a total is now wrong.",[35,11060,11061],{},"None of these makes a spreadsheet a bad choice. For a single-currency portfolio of ten stocks at one broker, a Google Sheets tracker is genuinely hard to beat: it is free, it does exactly what you tell it, and you own the file. The maintenance cost grows with accounts, currencies and years, not with the number of stocks.",[39,11063,11065],{"id":11064},"does-google-have-a-stock-tracker","Does Google have a stock tracker?",[35,11067,11068,11069,11074],{},"Yes. Google provides a stock tracker on the ",[219,11070,11073],{"href":11071,"rel":11072},"https://www.google.com/finance",[240],"Google Finance"," website, with both a watchlist and a portfolio feature, reachable from the hamburger menu on the left.",[35,11076,11077,11078,11082,11083,11087],{},"Google Finance's portfolio tracker shows a snapshot of your current holdings and their gain or loss. It does not keep a full transaction history, so it cannot produce historical performance over a period, dividend income history, or a benchmark comparison. For those, an online portfolio tracker such as ",[219,11079,11081],{"href":11080},"/","Portseido"," is the closer fit, and there is a breakdown of ",[219,11084,11086],{"href":11085},"/portfolio-tracker/google-finance-alternative/","how Portseido differs from Google Finance"," if you are choosing between them.",[39,11089,11091],{"id":11090},"is-there-a-free-stock-tracking-spreadsheet-template","Is there a free stock tracking spreadsheet template?",[35,11093,11094],{},"Yes, though not from Google itself. Google does not publish an official stock tracking template for Sheets, but several investors and educators maintain free ones you can copy into your own Drive.",[44,11096,11097,11112,11126],{},[47,11098,11099,11106,11107],{},[287,11100,11101],{},[219,11102,11105],{"href":11103,"rel":11104},"https://docs.google.com/spreadsheets/d/1qMOtNi3BA3xrvkji21ykRJpdbCCNLffXMkwhWDHLo-w/edit#gid=4",[240],"Old School Value Stock Tracking Spreadsheet"," by ",[219,11108,11111],{"href":11109,"rel":11110},"https://www.oldschoolvalue.com/",[240],"Old School Value",[47,11113,11114,11106,11121],{},[287,11115,11116],{},[219,11117,11120],{"href":11118,"rel":11119},"https://docs.google.com/spreadsheets/d/1swxMXLMtSkpwsnVFbOpJnwCu5mv8rIrIy65B16hRmEs/template/preview",[240],"General Trading Stock Portfolio Template",[219,11122,11125],{"href":11123,"rel":11124},"https://www.spreadsheetclass.com/",[240],"SpreadsheetClass.com",[47,11127,11128,11106,11135],{},[287,11129,11130],{},[219,11131,11134],{"href":11132,"rel":11133},"https://docs.google.com/spreadsheets/d/1lW0SUfsty7qEVJpWuV7ANkBZK027RI_CouSsDM0XfmQ/edit#gid=0",[240],"Stock Dashboard",[219,11136,11139],{"href":11137,"rel":11138},"https://www.youtube.com/@brianturgeon",[240],"Brian Turgeon",[35,11141,11142,11143,11145,11146,11148],{},"Before committing to any template, check three things: whether it stores transactions or only current holdings, whether it handles the currency you invest in, and whether the ",[2252,11144,10561],{}," calls resolve for your tickers. A template built for US large caps often returns ",[2252,11147,10642],{}," across a European or Asian portfolio.",[39,11150,320],{"id":319},[140,11152,11154],{"id":11153},"does-googlefinance-work-in-microsoft-excel","Does GOOGLEFINANCE work in Microsoft Excel?",[35,11156,11157,11158,11160,11161,11164],{},"No. ",[2252,11159,10561],{}," is a Google Sheets function and has no equivalent in Excel. Excel offers a Stocks data type in Microsoft 365 that pulls quotes into linked cells, and it supports the ",[2252,11162,11163],{},"STOCKHISTORY"," function for historical prices. The two are not interchangeable, so a Google Sheets tracker will not open correctly in Excel without rebuilding the price formulas.",[140,11166,11168],{"id":11167},"how-often-does-googlefinance-update-prices","How often does GOOGLEFINANCE update prices?",[35,11170,11171,11173],{},[2252,11172,10561],{}," refreshes quote data roughly every 20 minutes for US exchanges, and Google labels the feed as not for trading purposes. Sheets recalculates the function when the file is open and on a periodic schedule, so a closed spreadsheet will show stale figures until you reopen it. Delays for non-US exchanges can be longer.",[140,11175,11177],{"id":11176},"why-does-my-googlefinance-formula-return-na","Why does my GOOGLEFINANCE formula return #N/A?",[35,11179,11180,11181,11183,11184,11186,11187,11189,11190,11193],{},"A ",[2252,11182,10642],{}," from ",[2252,11185,10561],{}," usually means the ticker is not in Google's coverage, the exchange prefix is missing or wrong, or the attribute does not exist for that security type. Mutual funds, many bonds and some foreign listings are not covered. Adding the exchange, as in ",[2252,11188,10633],{}," instead of ",[2252,11191,11192],{},"\"VOD\"",", resolves a large share of these errors.",[140,11195,11197],{"id":11196},"should-i-track-stocks-in-a-spreadsheet-or-an-app","Should I track stocks in a spreadsheet or an app?",[35,11199,11200,11201,11204],{},"Track stocks in a spreadsheet when you hold a single-currency portfolio at one broker and want full control of the layout. Move to a dedicated tracker when you hold accounts at several brokers, invest across currencies, or want ",[219,11202,11203],{"href":1030},"portfolio return calculated consistently"," without maintaining the formulas yourself.",[39,11206,11208],{"id":11207},"how-to-track-stocks-without-a-spreadsheet-in-portseido","How to track stocks without a spreadsheet in Portseido",[35,11210,11211,11212,11216],{},"Portseido is a portfolio tracker that keeps the record a spreadsheet asks you to maintain by hand. It consolidates holdings across multiple brokers and currencies in one place, tracks cost basis, calculates time-weighted and money-weighted returns from your transaction history, records dividend income and yield on cost, and benchmarks the portfolio against indices and ETFs. Transactions come in through broker imports or a CSV or spreadsheet upload, so an existing Google Sheets log is a starting point rather than something you abandon; there is a ",[219,11213,11215],{"href":11214},"/TradeLog_Template.xlsx","spreadsheet import template"," if you would rather map your data to a known layout.",[35,11218,11219,11220],{},"It suits investors whose portfolio has outgrown manual upkeep. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,11221,363],{"href":361,"rel":11222},[240],[2524,11224,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":11226},[11227,11228,11229,11230,11231,11232,11233,11234,11235,11241],{"id":41,"depth":404,"text":42},{"id":10591,"depth":404,"text":10592},{"id":10645,"depth":404,"text":10646},{"id":10846,"depth":404,"text":10847},{"id":10939,"depth":404,"text":10940},{"id":11007,"depth":404,"text":11008},{"id":11064,"depth":404,"text":11065},{"id":11090,"depth":404,"text":11091},{"id":319,"depth":404,"text":320,"children":11236},[11237,11238,11239,11240],{"id":11153,"depth":401,"text":11154},{"id":11167,"depth":401,"text":11168},{"id":11176,"depth":401,"text":11177},{"id":11196,"depth":401,"text":11197},{"id":11207,"depth":404,"text":11208},"Google Sheets tracks stocks through the GOOGLEFINANCE function, which pulls prices, P/E, EPS, market cap, beta and historical closes into any cell.",{},"/blog/stock-tracking-spreadsheet","2024-01-05",{"title":10540,"description":11242},"blog/stock-tracking-spreadsheet","yVo_W1Rx_iSPZiIhxwji1HxZ8noc8qnNLQVbECZ6BTU",{"id":11250,"title":11251,"body":11252,"description":11679,"extension":428,"meta":11680,"navigation":430,"path":11681,"publishedAt":11682,"seo":11683,"seo_description":434,"seo_title":434,"social_image":11265,"stem":11684,"updatedAt":436,"__hash__":11685},"blog/blog/time-weighted-return.md","What is Time-Weighted Return (TWR)?",{"type":7,"value":11253,"toc":11660},[11254,11267,11270,11272,11293,11295,11298,11301,11304,11306,11309,11311,11314,11322,11329,11345,11354,11358,11361,11441,11444,11447,11456,11459,11463,11470,11484,11492,11495,11501,11505,11508,11511,11515,11518,11523,11569,11575,11579,11585,11589,11592,11616,11623,11625,11629,11632,11636,11639,11643,11646,11650,11653,11658],[10,11255,12,11256,12,11259,12,11262],{},[14,11257],{"srcSet":11258,"type":17},"/blog_images/time-weighted-return/time-weighted-return-cover.avif",[14,11260],{"srcSet":11261,"type":21},"/blog_images/time-weighted-return/time-weighted-return-cover.webp",[23,11263],{"alt":11264,"src":11265,"style":4975,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":11266},"Time-Weighted Return (TWR) cover image","/blog_images/time-weighted-return/time-weighted-return-cover.png",[33],[35,11268,11269],{},"Time-weighted return (TWR) is a measure of investment performance that splits a period into sub-periods at every deposit or withdrawal, calculates each sub-period's return separately, and chains them together so every sub-period counts equally. Because the amount of money in the portfolio never changes the weighting, time-weighted return shows how the investments performed rather than how well the timing of contributions worked out.",[39,11271,42],{"id":41},[44,11273,11274,11277,11284,11287,11290],{},[47,11275,11276],{},"Time-weighted return (TWR) measures investment performance by calculating each sub-period's return separately and multiplying those returns together, so every period carries equal weight whatever the portfolio was worth at the time.",[47,11278,11279,11280,11283],{},"Time-weighted return is calculated as ",[2255,11281,11282],{},"(1 + R1) x (1 + R2) x ... x (1 + Rn)"," - 1, where each R is the return of one sub-period between cash flows.",[47,11285,11286],{},"Time-weighted return removes the effect of deposits and withdrawals, which is why it is the standard basis for reporting fund and investment manager performance.",[47,11288,11289],{},"Time-weighted return differs from money-weighted return, which builds in the size and timing of every cash flow and so measures what the investor personally earned.",[47,11291,11292],{},"Time-weighted return differs from CAGR, because CAGR assumes one constant growth rate across the whole period instead of chaining each sub-period's actual return.",[39,11294,10265],{"id":10264},[35,11296,11297],{},"Time-weighted return (TWR) is a measure of investment performance that calculates the return for each time period separately and then combines those returns with equal weight. The name comes from that equal weighting: each slice of time counts the same, whatever the portfolio happened to be worth during it.",[35,11299,11300],{},"A portfolio's value changes for two reasons: the investments moved, or money was added or taken out. Time-weighted return separates the two by cutting the timeline at every cash flow and compounding the slices together, so deposits and withdrawals set the sub-period boundaries but never enter the return figures themselves.",[35,11302,11303],{},"That property is why time-weighted return is the reporting standard for funds and investment managers, who do not choose when their clients deposit or redeem.",[39,11305,6498],{"id":6497},[35,11307,11308],{},"Time-weighted return is calculated by splitting the measurement period into sub-periods at every cash flow, computing each sub-period's return, adding one to each, multiplying them together, and subtracting one from the product.",[140,11310,6530],{"id":6529},[35,11312,11313],{},"The time-weighted return formula has two parts: one that computes the return of a single sub-period from the portfolio values and the cash flow at its start, and one that chains those sub-period returns into a figure for the whole period.",[10,11315,12,11316,12,11318,12,11320],{},[14,11317],{"srcSet":6535,"type":17},[14,11319],{"srcSet":6538,"type":21},[23,11321],{"alt":6530,"src":6541,"style":6542,"width":6543,"height":6544,"decoding":30,"fetchPriority":31},[35,11323,7085,11324,8020,11326,11328],{},[2252,11325,8019],{},[2252,11327,8023],{}," is the cash deposited or withdrawn at time k:",[2246,11330,11331],{"className":2248,"code":7998,"language":2250,"meta":400,"style":400},[2252,11332,11333,11337,11341],{"__ignoreMap":400},[2255,11334,11335],{"class":2257,"line":2258},[2255,11336,8005],{},[2255,11338,11339],{"class":2257,"line":404},[2255,11340,3035],{"emptyLinePlaceholder":430},[2255,11342,11343],{"class":2257,"line":401},[2255,11344,8014],{},[35,11346,11347,11348,11350,11351,11353],{},"A withdrawal is entered as a negative ",[2252,11349,8023],{},". When no money moved at time k, ",[2252,11352,8023],{}," is zero and the sub-period return collapses to the end value divided by the start value, minus 1.",[39,11355,11357],{"id":11356},"time-weighted-return-calculation-example","Time-weighted return calculation example",[35,11359,11360],{},"A portfolio that begins at $10,000, takes a $1,000 deposit, runs through four sub-periods and ends at $12,000 has a time-weighted return of 18.58%.",[80,11362,11363,11382],{},[83,11364,11365],{},[86,11366,11367,11370,11373,11376,11379],{},[89,11368,11369],{},"Sub-period",[89,11371,11372],{},"Starting value",[89,11374,11375],{},"Cash in/out",[89,11377,11378],{},"Value at end",[89,11380,11381],{},"Sub-period return",[96,11383,11384,11399,11413,11427],{},[86,11385,11386,11388,11391,11394,11396],{},[101,11387,4458],{},[101,11389,11390],{},"$10,000",[101,11392,11393],{},"+$1,000",[101,11395,9093],{},[101,11397,11398],{},"9.09%",[86,11400,11401,11403,11405,11407,11410],{},[101,11402,4469],{},[101,11404,9093],{},[101,11406,3393],{},[101,11408,11409],{},"$13,200",[101,11411,11412],{},"10.00%",[86,11414,11415,11417,11419,11421,11424],{},[101,11416,4480],{},[101,11418,11409],{},[101,11420,3393],{},[101,11422,11423],{},"$12,500",[101,11425,11426],{},"-5.30%",[86,11428,11429,11431,11433,11436,11438],{},[101,11430,4491],{},[101,11432,11423],{},[101,11434,11435],{},"-$1,000",[101,11437,9093],{},[101,11439,11440],{},"4.35%",[35,11442,11443],{},"Sub-period 1 shows how a cash flow is handled. The $1,000 deposit is added to the $10,000 starting value, so the return is (12,000 - 11,000) / 11,000 = 9.09%, not (12,000 - 10,000) / 10,000 = 20%. Treating the deposit as a gain would be the single most common mistake in the calculation.",[35,11445,11446],{},"Chaining the four sub-period returns gives the time-weighted return for the whole period:",[2246,11448,11450],{"className":2248,"code":11449,"language":2250,"meta":400,"style":400},"TWR = (1 + 0.0909) x (1 + 0.1000) x (1 - 0.0530) x (1 + 0.0435) - 1 = 0.1858 = 18.58%\n",[2252,11451,11452],{"__ignoreMap":400},[2255,11453,11454],{"class":2257,"line":2258},[2255,11455,11449],{},[35,11457,11458],{},"The portfolio ended $2,000 above where it started, but $1,000 of that was a deposit and $1,000 was later withdrawn, so the raw change in value says almost nothing. The 18.58% is what the investments did once the cash flows are removed.",[39,11460,11462],{"id":11461},"how-do-you-calculate-time-weighted-return-in-excel","How do you calculate time-weighted return in Excel?",[35,11464,11465,11466,11469],{},"Time-weighted return is calculated in Excel by listing each sub-period's opening value and cash flow, computing the sub-period returns in one column, then multiplying ",[2252,11467,11468],{},"(1 + return)"," across that column and subtracting 1.",[178,11471,11472,11475,11478],{},[47,11473,11474],{},"Input the portfolio value at the start of each sub-period, with any cash flow at that point, positive for a deposit and negative for a withdrawal.",[47,11476,11477],{},"Calculate each sub-period's return as the next opening value divided by the current opening value plus that cash flow, minus 1.",[47,11479,11480,11481,733],{},"Chain the column with a formula such as ",[2252,11482,11483],{},"=(1+D2)*(1+D3)*(1+D4)*(1+D5)-1",[10,11485,12,11486,12,11488,12,11490],{},[14,11487],{"srcSet":6564,"type":17},[14,11489],{"srcSet":6567,"type":21},[23,11491],{"alt":6570,"src":6571,"style":6572,"width":6573,"height":6574,"decoding":30,"fetchPriority":31},[35,11493,11494],{},"The spreadsheet stops being practical on a real portfolio, because a correct time-weighted return needs the portfolio revalued on every deposit, withdrawal and transfer date, at every broker you hold. Portseido calculates time-weighted return from your imported transaction history automatically, across brokers and currencies, so the sub-period boundaries stay correct without rebuilding the sheet after each trade.",[35,11496,11497,11498,733],{},"Alternatively, you can try calculating time-weighted return with our ",[219,11499,11500],{"href":6580},"free time-weighted return calculator",[39,11502,11504],{"id":11503},"is-time-weighted-return-the-same-as-cagr","Is time-weighted return the same as CAGR?",[35,11506,11507],{},"No. Time-weighted return and compound annual growth rate (CAGR) are related but not identical: CAGR describes a single constant annual growth rate over one unbroken period, while time-weighted return chains together the separately measured returns of many sub-periods.",[35,11509,11510],{},"The two coincide in one case: for a portfolio with no deposits or withdrawals, the annualised time-weighted return is the CAGR. Once cash flows exist they diverge, because a CAGR taken from start and end values alone counts deposits as investment gains.",[39,11512,11514],{"id":11513},"what-is-the-difference-between-time-weighted-return-and-money-weighted-return","What is the difference between time-weighted return and money-weighted return?",[35,11516,11517],{},"Time-weighted return ignores the size and timing of cash flows and measures how the investments performed, while money-weighted return builds cash flows in and measures what the investor actually earned.",[35,11519,11520,11522],{},[219,11521,3940],{"href":3939},", also called the internal rate of return (IRR), is the single rate that makes the present value of every cash flow plus the ending portfolio value equal zero. It therefore rises when a large deposit lands before a rally and falls when one lands before a decline.",[80,11524,11525,11535],{},[83,11526,11527],{},[86,11528,11529,11531,11533],{},[89,11530],{},[89,11532,3915],{},[89,11534,3940],{},[96,11536,11537,11545,11553,11561],{},[86,11538,11539,11541,11543],{},[101,11540,7282],{},[101,11542,7288],{},[101,11544,7285],{},[86,11546,11547,11549,11551],{},[101,11548,7293],{},[101,11550,7298],{},[101,11552,7285],{},[86,11554,11555,11557,11559],{},[101,11556,2456],{},[101,11558,7308],{},[101,11560,7305],{},[86,11562,11563,11565,11567],{},[101,11564,7313],{},[101,11566,7319],{},[101,11568,7316],{},[35,11570,11571,11572,11574],{},"Neither figure is more correct than the other; the full ",[219,11573,7325],{"href":3959}," sets out when each one is the honest answer.",[39,11576,11578],{"id":11577},"what-is-the-difference-between-roi-and-time-weighted-return","What is the difference between ROI and time-weighted return?",[35,11580,11581,11582,11584],{},"Return on investment (ROI) divides total gain by the amount invested in a single step, while time-weighted return measures each sub-period separately and compounds those returns together. Neither rewards a larger balance, but ROI is distorted by mid-period deposits, because new money inflates the denominator without having had time to earn anything. Time-weighted return is one of ",[219,11583,7359],{"href":1030},", and ROI, under the name simple return, is another.",[39,11586,11588],{"id":11587},"when-should-you-use-time-weighted-return","When should you use time-weighted return?",[35,11590,11591],{},"Use time-weighted return whenever you want to judge investment performance separately from the timing of contributions, and above all when you did not control that timing.",[44,11593,11594,11604,11610],{},[47,11595,11596,11599,11600,11603],{},[287,11597,11598],{},"Comparing yourself with an index."," ",[219,11601,11602],{"href":2137},"Benchmarking a portfolio against an index or ETF"," only works if your figure is cash-flow neutral, as the index's is.",[47,11605,11606,11609],{},[287,11607,11608],{},"Comparing funds or managers."," Published fund returns are time-weighted, so it is the like-for-like comparison.",[47,11611,11612,11615],{},[287,11613,11614],{},"Regular contributions."," For an investor paying in monthly, it separates the investing decisions from the payment schedule.",[35,11617,11618,11619,11622],{},"Time-weighted return has one real weakness: because every sub-period counts equally, a small early portfolio counts as much as a large later one. A portfolio worth $1,000 that gained 50%, then took a $2,000 deposit and lost 20%, still shows a positive time-weighted return while the investor is down in cash terms. That is why ",[219,11620,11621],{"href":3274},"a full portfolio performance evaluation"," reports both return methods alongside risk measures.",[39,11624,320],{"id":319},[140,11626,11628],{"id":11627},"can-time-weighted-return-be-negative","Can time-weighted return be negative?",[35,11630,11631],{},"Yes. Time-weighted return is negative whenever the chained product of the sub-period returns is less than 1, meaning the investments lost value over the period on a cash-flow-neutral basis. A single very poor sub-period can drag the whole chain negative even if most sub-periods were positive, because the sub-period returns are multiplied rather than averaged.",[140,11633,11635],{"id":11634},"does-time-weighted-return-include-dividends","Does time-weighted return include dividends?",[35,11637,11638],{},"Yes, when calculated properly. Dividends and interest earned inside the portfolio are investment returns, so they belong in the sub-period's ending value or in its income term. Only cash you personally add or remove counts as a cash flow that starts a new sub-period. Reinvested dividends therefore need no special handling at all.",[140,11640,11642],{"id":11641},"how-do-you-annualise-a-time-weighted-return","How do you annualise a time-weighted return?",[35,11644,11645],{},"Annualise a time-weighted return with ((1 + TWR) ^ (1 / Number of Years)) - 1. A time-weighted return of 18.58% earned over two years annualises to roughly 8.9% a year. Annualising matters before any comparison, because fund and index returns are quoted annually and comparing a multi-year figure against a one-year one overstates performance.",[39,11647,11649],{"id":11648},"how-to-track-time-weighted-return-in-portseido","How to track time-weighted return in Portseido",[35,11651,11652],{},"Portseido is a portfolio tracker that calculates time-weighted return from your transaction history, so the sub-period boundaries and revaluations happen automatically. It consolidates holdings across brokers and currencies, reports simple return, time-weighted return and money-weighted return side by side, tracks cost basis, dividends and yield on cost, and benchmarks the portfolio against indices and ETFs so the time-weighted figure has something to be measured against. Transactions import from brokers or from a CSV.",[35,11654,1306,11655],{},[219,11656,363],{"href":361,"rel":11657},[240],[2524,11659,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":11661},[11662,11663,11664,11667,11668,11669,11670,11671,11672,11673,11678],{"id":41,"depth":404,"text":42},{"id":10264,"depth":404,"text":10265},{"id":6497,"depth":404,"text":6498,"children":11665},[11666],{"id":6529,"depth":401,"text":6530},{"id":11356,"depth":404,"text":11357},{"id":11461,"depth":404,"text":11462},{"id":11503,"depth":404,"text":11504},{"id":11513,"depth":404,"text":11514},{"id":11577,"depth":404,"text":11578},{"id":11587,"depth":404,"text":11588},{"id":319,"depth":404,"text":320,"children":11674},[11675,11676,11677],{"id":11627,"depth":401,"text":11628},{"id":11634,"depth":401,"text":11635},{"id":11641,"depth":401,"text":11642},{"id":11648,"depth":404,"text":11649},"Time-weighted return (TWR) measures investment performance by chaining the return of each sub-period, so deposits and withdrawals do not affect the result.",{},"/blog/time-weighted-return","2023-11-02",{"title":11251,"description":11679},"blog/time-weighted-return","2m6vtelAOD_HFf0Ju_XfReCXkdMwLPg6fCHHMtpcdcs",{"id":11687,"title":11688,"body":11689,"description":12124,"extension":428,"meta":12125,"navigation":430,"path":12126,"publishedAt":12127,"seo":12128,"seo_description":434,"seo_title":434,"social_image":11702,"stem":12129,"updatedAt":436,"__hash__":12130},"blog/blog/treynor-ratio.md","Treynor Ratio - What is it? How to calculate?",{"type":7,"value":11690,"toc":12100},[11691,11704,11707,11709,11726,11730,11737,11740,11743,11747,11750,11758,11767,11770,11774,11777,11781,11787,11794,11798,11801,11804,11813,11816,11819,11864,11867,11871,11874,11877,11897,11900,11904,11910,11967,11970,11973,11977,11983,12020,12023,12027,12030,12034,12037,12041,12048,12052,12055,12057,12061,12064,12068,12071,12075,12078,12082,12085,12089,12092,12098],[10,11692,12,11693,12,11696,12,11699],{},[14,11694],{"srcSet":11695,"type":17},"/blog_images/treynor-ratio/treynor-ratio-cover.avif",[14,11697],{"srcSet":11698,"type":21},"/blog_images/treynor-ratio/treynor-ratio-cover.webp",[23,11700],{"alt":11701,"src":11702,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":11703},"What is Treynor ratio?","/blog_images/treynor-ratio/treynor-ratio-cover.png",[33],[35,11705,11706],{},"The Treynor Ratio is a risk-adjusted return measure that divides a portfolio's excess return by its beta. It was developed by Jack Treynor, who also named it the reward-to-volatility ratio, and it answers a narrower question than the better-known Sharpe Ratio: how well was an investor paid for the market risk they could not diversify away?",[39,11708,42],{"id":41},[44,11710,11711,11714,11717,11720,11723],{},[47,11712,11713],{},"The Treynor Ratio measures how much return above the risk-free rate a portfolio earned for each unit of market risk, where market risk is measured by beta.",[47,11715,11716],{},"The Treynor Ratio is calculated as the portfolio return minus the risk-free rate, divided by the portfolio's beta.",[47,11718,11719],{},"A higher Treynor Ratio is better, because it means more excess return was produced per unit of market risk taken.",[47,11721,11722],{},"The Treynor Ratio differs from the Sharpe Ratio only in its denominator: Treynor divides by beta (market risk), while Sharpe divides by standard deviation (total volatility).",[47,11724,11725],{},"The Treynor Ratio becomes meaningless when beta is negative or close to zero, because dividing by a negative or tiny denominator produces a number that cannot be ranked.",[39,11727,11729],{"id":11728},"what-is-the-treynor-ratio","What is the Treynor Ratio?",[35,11731,11732,11733,11736],{},"The Treynor Ratio, also known as the Treynor Index, the reward-to-volatility ratio or the Treynor measure, is a financial metric that ",[219,11734,11735],{"href":6689},"measures portfolio performance"," adjusted for systematic risk. It tells an investor how much excess return a portfolio generated for each additional unit of market risk it carried.",[35,11738,11739],{},"Systematic risk here means market-wide risk — the risk that affects every asset at once and that cannot be removed by adding more holdings. The Treynor Ratio deliberately ignores company-specific risk on the assumption that a well-diversified investor has already eliminated it, so the only risk still worth pricing is exposure to the market itself.",[35,11741,11742],{},"That assumption makes it a fund-comparison tool: it scores a holding on the risk it contributes to a diversified portfolio, rather than on the volatility it would inflict on someone who owned nothing else.",[39,11744,11746],{"id":11745},"how-is-the-treynor-ratio-calculated","How is the Treynor Ratio calculated?",[35,11748,11749],{},"The Treynor Ratio is calculated by subtracting the risk-free rate from the portfolio's return and dividing the result by the portfolio's beta. Two inputs and one divisor are all it needs.",[10,11751,12,11752,12,11754,12,11756],{},[14,11753],{"srcSet":8374,"type":17},[14,11755],{"srcSet":8377,"type":21},[23,11757],{"alt":8380,"src":8381,"style":6425,"width":8382,"height":8383,"decoding":30},[2246,11759,11761],{"className":2248,"code":11760,"language":2250,"meta":400,"style":400},"Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Beta\n",[2252,11762,11763],{"__ignoreMap":400},[2255,11764,11765],{"class":2257,"line":2258},[2255,11766,11760],{},[35,11768,11769],{},"The Treynor Ratio calculation has two main components.",[140,11771,11773],{"id":11772},"_1-excess-return","1. Excess return",[35,11775,11776],{},"Excess return is the portfolio's return above the risk-free rate, and it forms the numerator of the Treynor Ratio. The portfolio return is what the portfolio actually delivered over the period measured; the risk-free rate is the return on an asset assumed to carry no risk, usually a government bond of the same currency and a comparable maturity. Both figures must cover the same period, or the resulting ratio means nothing.",[140,11778,11780],{"id":11779},"_2-beta","2. Beta",[35,11782,11783,11786],{},[219,11784,11785],{"href":2971},"Beta (β)"," is a measure of how much a portfolio's return moves relative to its benchmark, and it forms the denominator of the Treynor Ratio. A beta of 1.0 means the portfolio has historically moved in line with the market, above 1.0 means it amplifies market moves, and below 1.0 means it dampens them.",[35,11788,11789,11790,11793],{},"Beta is estimated by regressing the portfolio's historical returns against the benchmark's, so the Treynor Ratio inherits whatever instability that estimate carries. Getting a defensible portfolio return is the other half of the work: Portseido calculates time-weighted and money-weighted returns from your transaction history across brokers and currencies, and ",[219,11791,11792],{"href":2137},"benchmarks the portfolio against indices and ETFs",", so both figures come from one consistent record.",[39,11795,11797],{"id":11796},"treynor-ratio-calculation-example","Treynor Ratio calculation example",[35,11799,11800],{},"A portfolio that returned 12% over a year, against a 3% risk-free rate, with a beta of 1.2, has a Treynor Ratio of 0.075.",[35,11802,11803],{},"Working through the Treynor Ratio formula, which is the portfolio return minus the risk-free rate divided by the portfolio's beta:",[2246,11805,11807],{"className":2248,"code":11806,"language":2250,"meta":400,"style":400},"Treynor Ratio = (12% - 3%) / 1.2 = 9% / 1.2 = 0.075\n",[2252,11808,11809],{"__ignoreMap":400},[2255,11810,11811],{"class":2257,"line":2258},[2255,11812,11806],{},[35,11814,11815],{},"A Treynor Ratio of 0.075 means the portfolio produced 7.5 percentage points of excess return for each unit of market risk it carried.",[35,11817,11818],{},"Now compare a second portfolio that returned 15% over the same year with a beta of 1.8, measured against the same 3% risk-free rate:",[80,11820,11821,11835],{},[83,11822,11823],{},[86,11824,11825,11828,11830,11832],{},[89,11826,11827],{},"Portfolio",[89,11829,7907],{},[89,11831,8109],{},[89,11833,11834],{},"Treynor Ratio",[96,11836,11837,11850],{},[86,11838,11839,11842,11844,11847],{},[101,11840,11841],{},"Portfolio A",[101,11843,9129],{},[101,11845,11846],{},"1.2",[101,11848,11849],{},"(12% - 3%) / 1.2 = 0.075",[86,11851,11852,11855,11858,11861],{},[101,11853,11854],{},"Portfolio B",[101,11856,11857],{},"15%",[101,11859,11860],{},"1.8",[101,11862,11863],{},"(15% - 3%) / 1.8 = 0.067",[35,11865,11866],{},"Portfolio B earned more in absolute terms, but Portfolio A converted market risk into return more efficiently. An investor adding either one to an already diversified portfolio would be better served by A, because B's extra 3 percentage points of return came at a disproportionate cost in market exposure.",[39,11868,11870],{"id":11869},"is-a-higher-or-lower-treynor-ratio-better","Is a higher or lower Treynor Ratio better?",[35,11872,11873],{},"A higher Treynor Ratio is better, because it means the portfolio generated more return above the risk-free rate for each unit of market risk it took on. There is no absolute threshold at which a Treynor Ratio becomes \"good\" in the way a Sharpe Ratio above 1.0 is conventionally considered decent.",[35,11875,11876],{},"Read a Treynor Ratio against three references rather than in isolation:",[178,11878,11879,11885,11891],{},[47,11880,11881,11884],{},[287,11882,11883],{},"A peer with a similar mandate."," Compare funds in the same asset class, over the same period, with the same risk-free rate.",[47,11886,11887,11890],{},[287,11888,11889],{},"The benchmark itself."," The market's own Treynor Ratio is its excess return divided by a beta of 1.0, so it reduces to the market's excess return. Beating that is the bar.",[47,11892,11893,11896],{},[287,11894,11895],{},"The same portfolio over time."," A Treynor Ratio that falls while the headline return rises means the portfolio is buying its returns with more market risk.",[35,11898,11899],{},"A negative Treynor Ratio caused by a return below the risk-free rate means the portfolio took market risk and was worse off than holding a government bond.",[39,11901,11903],{"id":11902},"treynor-ratio-vs-sharpe-ratio","Treynor Ratio vs Sharpe Ratio",[35,11905,11906,11907,11909],{},"The Treynor Ratio and the ",[219,11908,1977],{"href":1976}," are built identically except for their denominator: the Treynor Ratio divides excess return by beta, while the Sharpe Ratio divides it by the standard deviation of returns.",[80,11911,11912,11922],{},[83,11913,11914],{},[86,11915,11916,11918,11920],{},[89,11917],{},[89,11919,11834],{},[89,11921,1977],{},[96,11923,11924,11934,11945,11956],{},[86,11925,11926,11928,11931],{},[101,11927,2434],{},[101,11929,11930],{},"(Return - Risk-Free Rate) / Beta",[101,11932,11933],{},"(Return - Risk-Free Rate) / Standard Deviation",[86,11935,11936,11939,11942],{},[101,11937,11938],{},"Risk it prices",[101,11940,11941],{},"Systematic risk only (market exposure)",[101,11943,11944],{},"Total risk (all volatility)",[86,11946,11947,11950,11953],{},[101,11948,11949],{},"Assumes",[101,11951,11952],{},"The investor is already diversified",[101,11954,11955],{},"The portfolio may be all the investor owns",[86,11957,11958,11961,11964],{},[101,11959,11960],{},"Best used for",[101,11962,11963],{},"Ranking a fund or holding that will sit inside a wider portfolio",[101,11965,11966],{},"Judging a standalone portfolio",[35,11968,11969],{},"Use the Sharpe Ratio to judge a portfolio that represents someone's whole investment position, because total volatility is what its owner actually experiences. Use the Treynor Ratio when the holding sits inside an already diversified portfolio, since only its market risk survives diversification.",[35,11971,11972],{},"The two ratios can rank the same funds differently, and that is informative rather than contradictory. A fund with high company-specific volatility but low market sensitivity scores poorly on Sharpe and well on Treynor — exactly the profile of a holding that looks wild alone and behaves calmly inside a diversified portfolio.",[39,11974,11976],{"id":11975},"how-does-the-treynor-ratio-compare-with-alpha","How does the Treynor Ratio compare with alpha?",[35,11978,11979,11980,11982],{},"The Treynor Ratio and ",[219,11981,3731],{"href":3730}," both adjust return for market risk, but the Treynor Ratio is a ratio of excess return per unit of beta, while alpha is a residual measured in percentage points.",[80,11984,11985,11997],{},[83,11986,11987],{},[86,11988,11989,11992,11995],{},[89,11990,11991],{},"Measure",[89,11993,11994],{},"What it divides by",[89,11996,1729],{},[96,11998,11999,12009],{},[86,12000,12001,12003,12006],{},[101,12002,11834],{},[101,12004,12005],{},"Beta (market sensitivity)",[101,12007,12008],{},"How much excess return per unit of market risk?",[86,12010,12011,12014,12017],{},[101,12012,12013],{},"Alpha",[101,12015,12016],{},"Not a ratio; a residual",[101,12018,12019],{},"How much return beat what the risk taken predicted?",[35,12021,12022],{},"Both use the same two inputs, portfolio return and beta, so they usually agree on direction. They differ in what they report: alpha gives the size of the outperformance in percentage points, while the unitless Treynor Ratio ranks investments cleanly without saying what the difference was worth.",[39,12024,12026],{"id":12025},"what-are-the-limitations-of-the-treynor-ratio","What are the limitations of the Treynor Ratio?",[35,12028,12029],{},"The Treynor Ratio is a useful risk-adjusted return measure, but no single metric is complete. Three limitations matter in practice.",[140,12031,12033],{"id":12032},"_1-negative-beta-breaks-the-ratio","1. Negative beta breaks the ratio",[35,12035,12036],{},"The Treynor Ratio loses its meaning when beta is negative, because dividing a positive excess return by a negative number produces a negative ratio that suggests poor performance when the opposite happened. A portfolio returning 8% against a 3% risk-free rate with a beta of -0.5 produces (8% - 3%) / -0.5 = -0.10, a result that ranks it below a portfolio that lost money. Beta must be positive for the Treynor Ratio to be interpretable, and a beta near zero inflates it toward infinity.",[140,12038,12040],{"id":12039},"_2-beta-is-an-imperfect-risk-measure","2. Beta is an imperfect risk measure",[35,12042,12043,12044,12047],{},"Beta quantifies an investment's return volatility relative to its benchmark, which may not capture its full risk profile. Beta is estimated from historical returns, so it can misstate current risk when a business changes, and it treats upside volatility as risk. Relying on it alone overlooks credit risk, liquidity risk and the risk of permanent capital loss, none of which appear in the Treynor Ratio. Reading it alongside ",[219,12045,12046],{"href":1218},"the actual drawdown a portfolio suffered"," fills part of that gap.",[140,12049,12051],{"id":12050},"_3-the-treynor-ratio-is-an-ordinal-measure","3. The Treynor Ratio is an ordinal measure",[35,12053,12054],{},"The Treynor Ratio ranks portfolios rather than quantifying the gap between them. It tells you which portfolio delivered more excess return per unit of market risk, but the difference between 0.075 and 0.067 has no direct interpretation in money terms. It is a sorting tool, not a measure of magnitude.",[39,12056,320],{"id":319},[140,12058,12060],{"id":12059},"can-the-treynor-ratio-be-negative","Can the Treynor Ratio be negative?",[35,12062,12063],{},"Yes, and it happens for two very different reasons. A Treynor Ratio is negative when the portfolio returned less than the risk-free rate, which is genuinely poor performance. It is also negative when beta is negative but the return was fine, which is a quirk of the formula rather than a verdict. Always check which case you are in before interpreting a negative Treynor Ratio.",[140,12065,12067],{"id":12066},"what-is-a-good-treynor-ratio-value","What is a good Treynor Ratio value?",[35,12069,12070],{},"There is no fixed threshold, because the Treynor Ratio scales with the excess return available in a given market and period. A Treynor Ratio is only meaningful next to a comparison: another fund measured the same way over the same window, or the benchmark's own excess return. Any Treynor Ratio quoted without its period, benchmark and risk-free rate cannot be judged.",[140,12072,12074],{"id":12073},"does-the-treynor-ratio-need-to-be-annualised","Does the Treynor Ratio need to be annualised?",[35,12076,12077],{},"Yes, if you intend to compare it with published figures, which are conventionally quoted on an annual basis. Annualise the return and the risk-free rate before dividing by beta, rather than annualising the finished ratio. Beta itself does not need annualising, since it is a unitless sensitivity rather than a rate.",[140,12079,12081],{"id":12080},"which-benchmark-should-be-used-for-the-beta-in-a-treynor-ratio","Which benchmark should be used for the beta in a Treynor Ratio?",[35,12083,12084],{},"Use the index that most closely matches what the portfolio actually holds, in the same currency and over the same period as the return figure. A portfolio of US large-cap stocks belongs against a US large-cap index. A mismatched benchmark distorts beta, and because beta is the entire denominator, it distorts the Treynor Ratio directly.",[39,12086,12088],{"id":12087},"how-to-track-portfolio-return-and-benchmarks-in-portseido","How to track portfolio return and benchmarks in Portseido",[35,12090,12091],{},"Portseido is a portfolio tracker that supplies the return side of any risk-adjusted calculation. It consolidates holdings across brokers and currencies, calculates time-weighted and money-weighted returns from your transaction history, tracks cost basis, dividends and yield on cost, reports allocation and drawdown, and benchmarks the portfolio against indices and ETFs so you can see your performance next to the market you measure it against.",[35,12093,12094,12095],{},"Portseido does not calculate the Treynor Ratio or estimate beta. It tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,12096,363],{"href":361,"rel":12097},[240],[2524,12099,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":12101},[12102,12103,12104,12108,12109,12110,12111,12112,12117,12123],{"id":41,"depth":404,"text":42},{"id":11728,"depth":404,"text":11729},{"id":11745,"depth":404,"text":11746,"children":12105},[12106,12107],{"id":11772,"depth":401,"text":11773},{"id":11779,"depth":401,"text":11780},{"id":11796,"depth":404,"text":11797},{"id":11869,"depth":404,"text":11870},{"id":11902,"depth":404,"text":11903},{"id":11975,"depth":404,"text":11976},{"id":12025,"depth":404,"text":12026,"children":12113},[12114,12115,12116],{"id":12032,"depth":401,"text":12033},{"id":12039,"depth":401,"text":12040},{"id":12050,"depth":401,"text":12051},{"id":319,"depth":404,"text":320,"children":12118},[12119,12120,12121,12122],{"id":12059,"depth":401,"text":12060},{"id":12066,"depth":401,"text":12067},{"id":12073,"depth":401,"text":12074},{"id":12080,"depth":401,"text":12081},{"id":12087,"depth":404,"text":12088},"The Treynor Ratio measures excess return per unit of market risk: portfolio return minus the risk-free rate, divided by the portfolio's beta.",{},"/blog/treynor-ratio","2023-09-28",{"title":11688,"description":12124},"blog/treynor-ratio","58O-KdI-9WK6hUZlMm6WjWS8-kUqviigjKI3Du9yLAw",{"id":12132,"title":12133,"body":12134,"description":12598,"extension":428,"meta":12599,"navigation":430,"path":12600,"publishedAt":12601,"seo":12602,"seo_description":434,"seo_title":434,"social_image":12147,"stem":12603,"updatedAt":436,"__hash__":12604},"blog/blog/what-is-alpha.md","What is alpha in investing? What does alpha mean?",{"type":7,"value":12135,"toc":12579},[12136,12150,12153,12155,12172,12176,12179,12182,12185,12189,12192,12207,12210,12253,12256,12262,12266,12269,12272,12292,12295,12298,12302,12305,12325,12328,12332,12335,12338,12358,12362,12365,12422,12428,12432,12435,12479,12482,12486,12489,12492,12496,12499,12531,12533,12537,12540,12544,12547,12551,12554,12558,12561,12565,12571,12577],[10,12137,12,12138,12,12141,12,12144],{},[14,12139],{"srcSet":12140,"type":17},"/blog_images/what-is-alpha/what-is-alpha-in-investing.avif",[14,12142],{"srcSet":12143,"type":21},"/blog_images/what-is-alpha/what-is-alpha-in-investing.webp",[23,12145],{"alt":12146,"src":12147,"style":12148,"width":28,"height":29,"decoding":30,"fetchPriority":31,"className":12149},"What is Alpha?","/blog_images/what-is-alpha/what-is-alpha-in-investing.png","max-width:100%; width:600px; height:auto;aspect-ratio:'attr(width) / attr(height)'",[33],[35,12151,12152],{},"Alpha (α), also called Jensen's alpha, is the part of an investment's return that cannot be explained by the market risk it carried. It is the number investors reach for when they want to separate skill from a rising market, and it is the standard yardstick for judging whether active management earned its fee.",[39,12154,42],{"id":41},[44,12156,12157,12160,12163,12166,12169],{},[47,12158,12159],{},"Alpha is the difference between an investment's actual return and the return the capital asset pricing model (CAPM) predicted for the market risk it took.",[47,12161,12162],{},"Alpha is calculated as the portfolio return minus the risk-free rate plus beta times the market's excess return, and is quoted in percentage points rather than as a ratio.",[47,12164,12165],{},"A positive alpha means the investment beat the return its risk level predicted; a negative alpha means it fell short of that prediction.",[47,12167,12168],{},"Alpha depends entirely on the benchmark and the beta used, so the same portfolio can show positive alpha against one index and negative alpha against another.",[47,12170,12171],{},"Alpha is backward-looking and does not survive fees well, which is why a fund's past alpha is a weak predictor of its future alpha.",[39,12173,12175],{"id":12174},"what-is-alpha-in-investing","What is alpha in investing?",[35,12177,12178],{},"Alpha is a measure of the excess return of an investment relative to the return expected of it under the capital asset pricing model (CAPM). It isolates the part of a return that came from the specific characteristics of the investment rather than from the general movement of the market.",[35,12180,12181],{},"The logic runs in two steps. CAPM says an investment carrying more market risk should be expected to earn more, and it puts a number on that expectation. Alpha then asks whether the investment actually cleared that bar. A portfolio that returned 25% in a year the market returned 20% has not necessarily done anything clever — if it took far more market risk to get there, 25% may be less than it should have delivered.",[35,12183,12184],{},"Alpha is expressed in percentage points, not as a ratio. An alpha of 1.4% means the investment returned 1.4 percentage points more than its risk level predicted.",[39,12186,12188],{"id":12187},"how-is-alpha-calculated","How is alpha calculated?",[35,12190,12191],{},"Alpha is calculated by subtracting the return CAPM predicts for an investment from the return the investment actually delivered. The prediction is the risk-free rate plus the investment's beta multiplied by the market's excess return.",[2246,12193,12195],{"className":2248,"code":12194,"language":2250,"meta":400,"style":400},"α = Actual Portfolio Return - Expected Portfolio Return\nα = R_p - ( R_f + Beta * (R_m - R_f) )\n",[2252,12196,12197,12202],{"__ignoreMap":400},[2255,12198,12199],{"class":2257,"line":2258},[2255,12200,12201],{},"α = Actual Portfolio Return - Expected Portfolio Return\n",[2255,12203,12204],{"class":2257,"line":404},[2255,12205,12206],{},"α = R_p - ( R_f + Beta * (R_m - R_f) )\n",[35,12208,12209],{},"The inputs are:",[80,12211,12212,12222],{},[83,12213,12214],{},[86,12215,12216,12219],{},[89,12217,12218],{},"Input",[89,12220,12221],{},"What it means",[96,12223,12224,12231,12239,12246],{},[86,12225,12226,12228],{},[101,12227,8097],{},[101,12229,12230],{},"The portfolio's actual return over the period",[86,12232,12233,12236],{},[101,12234,12235],{},"R_f",[101,12237,12238],{},"The risk-free rate, usually a short-term government bond yield in the same currency",[86,12240,12241,12243],{},[101,12242,8105],{},[101,12244,12245],{},"The return of the benchmark or market index over the same period",[86,12247,12248,12250],{},[101,12249,8109],{},[101,12251,12252],{},"The investment's sensitivity to market movements, where 1.0 moves with the market",[35,12254,12255],{},"All four inputs must cover the same period. Mixing a one-year portfolio return with a monthly benchmark return produces an alpha that means nothing.",[35,12257,12258,12259,12261],{},"Two of them are the ones investors get wrong in practice: the portfolio's own return, and the benchmark it is measured against. Portseido calculates time-weighted and money-weighted returns across brokers and currencies and ",[219,12260,11792],{"href":2137},", so both figures come from one consistent record rather than from three separate broker statements.",[39,12263,12265],{"id":12264},"alpha-calculation-example","Alpha calculation example",[35,12267,12268],{},"A portfolio that returned 25% over a year, with a risk-free rate of 2%, a beta of 1.2, and a benchmark index that returned 20% over the same year, has an alpha of 1.4%.",[35,12270,12271],{},"Working through the alpha formula, which is the actual return minus the risk-free rate plus beta times the market's excess return:",[2246,12273,12275],{"className":2248,"code":12274,"language":2250,"meta":400,"style":400},"α = 25% - ( 2% + 1.2 * (20% - 2%) )\nα = 25% - ( 2% + 21.6% )\nα = 25% - 23.6% = 1.4%\n",[2252,12276,12277,12282,12287],{"__ignoreMap":400},[2255,12278,12279],{"class":2257,"line":2258},[2255,12280,12281],{},"α = 25% - ( 2% + 1.2 * (20% - 2%) )\n",[2255,12283,12284],{"class":2257,"line":404},[2255,12285,12286],{},"α = 25% - ( 2% + 21.6% )\n",[2255,12288,12289],{"class":2257,"line":401},[2255,12290,12291],{},"α = 25% - 23.6% = 1.4%\n",[35,12293,12294],{},"A beta of 1.2 means the portfolio is more sensitive to market moves than the index, so CAPM expects it to earn more: 23.6% rather than the index's 20%. The portfolio delivered 25%, clearing that bar by 1.4 percentage points.",[35,12296,12297],{},"Now change one input. If the same 25% return had come with a beta of 1.6, the expected return would be 2% + 1.6 x 18% = 30.8%, and the alpha would be 25% - 30.8% = -5.8%. The headline return is identical; the verdict flips, because the portfolio took far more market risk to reach it.",[39,12299,12301],{"id":12300},"what-does-a-positive-or-negative-alpha-mean","What does a positive or negative alpha mean?",[35,12303,12304],{},"A positive alpha means the investment returned more than its level of market risk predicted, and a negative alpha means it returned less. The comparison is against a risk-adjusted expectation, not against the raw index return.",[44,12306,12307,12313,12319],{},[47,12308,12309,12312],{},[287,12310,12311],{},"Positive alpha."," Active management, security selection or timing added return beyond what the portfolio's market exposure would have delivered on its own.",[47,12314,12315,12318],{},[287,12316,12317],{},"Alpha of zero."," The investment earned exactly what its beta predicted. It was, in effect, a repackaged version of the index.",[47,12320,12321,12324],{},[287,12322,12323],{},"Negative alpha."," The investment underperformed its risk-adjusted expectation. Fees alone push many funds here even when their headline return looks respectable.",[35,12326,12327],{},"A portfolio can beat the index and still post negative alpha, as the 1.6-beta case above shows. That is the whole point of the measure.",[39,12329,12331],{"id":12330},"what-is-a-good-alpha","What is a good alpha?",[35,12333,12334],{},"Any alpha consistently above zero after fees is good, because zero is the return an investor could have had by simply holding the benchmark at the same risk level. There is no threshold above which alpha becomes \"strong\" in the way a Sharpe Ratio above 2.0 is considered strong.",[35,12336,12337],{},"Judge an alpha on three things rather than its size alone:",[178,12339,12340,12346,12352],{},[47,12341,12342,12345],{},[287,12343,12344],{},"Persistence."," One year of positive alpha is noise; several years across different market conditions is evidence.",[47,12347,12348,12351],{},[287,12349,12350],{},"Net of costs."," Alpha calculated on gross returns ignores management fees, trading costs and spreads, all of which come out of the investor's pocket.",[47,12353,12354,12357],{},[287,12355,12356],{},"Benchmark honesty."," A small-cap portfolio scored against a large-cap index will show alpha that is really just a size exposure.",[39,12359,12361],{"id":12360},"what-is-the-difference-between-alpha-and-beta","What is the difference between alpha and beta?",[35,12363,12364],{},"Alpha and beta measure different things: alpha measures return above a risk-adjusted expectation, while beta measures how sensitive an investment is to market movements. Beta is an input to the alpha calculation, not an alternative to it.",[80,12366,12367,12377],{},[83,12368,12369],{},[86,12370,12371,12373,12375],{},[89,12372],{},[89,12374,12013],{},[89,12376,8109],{},[96,12378,12379,12389,12400,12411],{},[86,12380,12381,12383,12386],{},[101,12382,10185],{},[101,12384,12385],{},"Return above the CAPM expectation",[101,12387,12388],{},"Sensitivity of returns to the market",[86,12390,12391,12394,12397],{},[101,12392,12393],{},"Units",[101,12395,12396],{},"Percentage points",[101,12398,12399],{},"A multiplier, where 1.0 = moves with the market",[86,12401,12402,12405,12408],{},[101,12403,12404],{},"Typical reading",[101,12406,12407],{},"Positive is good, negative is bad",[101,12409,12410],{},"Above 1.0 is more volatile, below 1.0 is less",[86,12412,12413,12416,12419],{},[101,12414,12415],{},"Role in CAPM",[101,12417,12418],{},"The residual left over",[101,12420,12421],{},"A component of the expected return",[35,12423,12424,12425,733],{},"A beta of 1.0 means the investment is as volatile as the market, above 1.0 means more volatile, and below 1.0 means less. ",[219,12426,12427],{"href":2971},"Beta is covered in full in a separate article",[39,12429,12431],{"id":12430},"how-does-alpha-compare-with-the-sharpe-ratio-and-the-treynor-ratio","How does alpha compare with the Sharpe Ratio and the Treynor Ratio?",[35,12433,12434],{},"Alpha, the Sharpe Ratio and the Treynor Ratio all adjust return for risk, but alpha is a residual measured in percentage points while the other two are ratios of excess return per unit of risk.",[80,12436,12437,12447],{},[83,12438,12439],{},[86,12440,12441,12443,12445],{},[89,12442,11991],{},[89,12444,11994],{},[89,12446,1729],{},[96,12448,12449,12457,12469],{},[86,12450,12451,12453,12455],{},[101,12452,12013],{},[101,12454,12016],{},[101,12456,12019],{},[86,12458,12459,12463,12466],{},[101,12460,12461],{},[219,12462,1977],{"href":1976},[101,12464,12465],{},"Total volatility (standard deviation)",[101,12467,12468],{},"How much excess return per unit of overall volatility?",[86,12470,12471,12475,12477],{},[101,12472,12473],{},[219,12474,11834],{"href":5560},[101,12476,12005],{},[101,12478,12008],{},[35,12480,12481],{},"Because alpha is stated in percentage points, it tells you the size of the outperformance. Because the Sharpe and Treynor Ratios are unitless, they rank investments cleanly but do not say how much the difference was worth.",[39,12483,12485],{"id":12484},"what-is-alpha-investing","What is alpha investing?",[35,12487,12488],{},"Alpha investing is the practice of selecting investments expected to produce positive alpha, meaning returns above what their market risk predicts. It is another name for active management, in contrast with holding an index and accepting the market return.",[35,12490,12491],{},"Investors pursuing alpha use fundamental analysis, technical analysis or data-driven approaches to find mispriced securities. The appeal is that returns which do not come from market exposure are uncorrelated with the market, so in principle they diversify a portfolio as well as add to it. The costs are certain while the alpha is not, which is why the honest comparison is always against a low-cost index fund rather than against zero.",[39,12493,12495],{"id":12494},"what-are-the-limitations-of-alpha","What are the limitations of alpha?",[35,12497,12498],{},"The main limitation of alpha is that it is only as meaningful as the benchmark and beta it is built on, both of which are chosen or estimated rather than given.",[44,12500,12501,12507,12513,12519,12525],{},[47,12502,12503,12506],{},[287,12504,12505],{},"Benchmark dependence."," Change the index and the alpha changes. A portfolio can show positive alpha against a broad market index and negative alpha against a sector index that matches what it actually holds.",[47,12508,12509,12512],{},[287,12510,12511],{},"Beta is an estimate."," Beta is fitted to historical data and moves as the relationship between the investment and the market shifts, so an alpha built on it inherits that instability.",[47,12514,12515,12518],{},[287,12516,12517],{},"It relies on CAPM."," Alpha assumes market risk is the only risk that should be rewarded, so factors such as company size, value and momentum are counted as skill when they may be exposures anyone could buy.",[47,12520,12521,12524],{},[287,12522,12523],{},"It is backward-looking."," Alpha describes what already happened, and a fund's past alpha is a weak guide to its future alpha.",[47,12526,12527,12530],{},[287,12528,12529],{},"Fees are easy to hide."," Alpha quoted on gross returns can be positive while the investor's net alpha is negative.",[39,12532,320],{"id":319},[140,12534,12536],{"id":12535},"can-alpha-be-negative","Can alpha be negative?",[35,12538,12539],{},"Yes. Alpha is negative whenever an investment returns less than the capital asset pricing model predicted for its level of market risk. This happens routinely: fees, trading costs and poor security selection all subtract from return without reducing market exposure. A negative alpha does not necessarily mean a loss — a portfolio can gain 15% and still post negative alpha if its risk level predicted 18%.",[140,12541,12543],{"id":12542},"is-a-high-return-the-same-as-high-alpha","Is a high return the same as high alpha?",[35,12545,12546],{},"No. A high return earned by taking more market risk produces little or no alpha, because the capital asset pricing model already expected the higher return. A portfolio with a beta of 1.5 that returned 22% while the market returned 15% may have zero alpha. Alpha only counts return that the risk taken does not explain.",[140,12548,12550],{"id":12549},"what-is-the-difference-between-alpha-and-excess-return","What is the difference between alpha and excess return?",[35,12552,12553],{},"Excess return is simply a portfolio's return minus a reference rate, usually the risk-free rate or the benchmark return. Alpha is stricter: it subtracts the return that the portfolio's beta predicted, so it adjusts for how much market risk the portfolio carried. A portfolio can post positive excess return over the benchmark and negative alpha at the same time.",[140,12555,12557],{"id":12556},"do-index-funds-have-alpha","Do index funds have alpha?",[35,12559,12560],{},"An index fund is designed to have an alpha of approximately zero, because it holds the benchmark rather than trying to beat it. In practice a tracker fund's alpha is slightly negative, by roughly the amount of its expense ratio and tracking costs. That small negative number is the honest bar any active strategy has to clear.",[39,12562,12564],{"id":12563},"how-to-track-portfolio-performance-and-benchmarks-in-portseido","How to track portfolio performance and benchmarks in Portseido",[35,12566,12567,12568,12570],{},"Portseido is a portfolio tracker that supplies the return and benchmark inputs an alpha calculation depends on. It consolidates holdings across brokers and currencies, calculates ",[219,12569,3138],{"href":1030}," from your transaction history, tracks cost basis, dividends and yield on cost, and benchmarks the portfolio against indices and ETFs so you can see how your performance compares with the market you are measuring against.",[35,12572,12573,12574],{},"Portseido does not compute alpha or beta for you. It tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,12575,363],{"href":361,"rel":12576},[240],[2524,12578,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":12580},[12581,12582,12583,12584,12585,12586,12587,12588,12589,12590,12591,12597],{"id":41,"depth":404,"text":42},{"id":12174,"depth":404,"text":12175},{"id":12187,"depth":404,"text":12188},{"id":12264,"depth":404,"text":12265},{"id":12300,"depth":404,"text":12301},{"id":12330,"depth":404,"text":12331},{"id":12360,"depth":404,"text":12361},{"id":12430,"depth":404,"text":12431},{"id":12484,"depth":404,"text":12485},{"id":12494,"depth":404,"text":12495},{"id":319,"depth":404,"text":320,"children":12592},[12593,12594,12595,12596],{"id":12535,"depth":401,"text":12536},{"id":12542,"depth":401,"text":12543},{"id":12549,"depth":401,"text":12550},{"id":12556,"depth":401,"text":12557},{"id":12563,"depth":404,"text":12564},"Alpha is the return an investment earned above what the capital asset pricing model predicted for the market risk it took, stated in percentage points.",{},"/blog/what-is-alpha","2023-01-03",{"title":12133,"description":12598},"blog/what-is-alpha","tD33UhCEIeRTPJRqIiSHfjYzEeXT15SFrdJ_Qf_cSiM",{"id":12606,"title":12607,"body":12608,"description":12986,"extension":428,"meta":12987,"navigation":430,"path":12988,"publishedAt":12989,"seo":12990,"seo_description":434,"seo_title":434,"social_image":12621,"stem":12991,"updatedAt":436,"__hash__":12992},"blog/blog/what-is-beta.md","What is Beta and what does it mean for investors?",{"type":7,"value":12609,"toc":12967},[12610,12625,12628,12630,12647,12651,12654,12661,12664,12668,12671,12679,12687,12690,12693,12697,12700,12709,12712,12716,12719,12739,12742,12748,12752,12755,12768,12828,12831,12835,12838,12841,12864,12871,12875,12878,12884,12890,12903,12906,12912,12915,12917,12921,12924,12928,12931,12935,12938,12942,12945,12949,12952,12956,12959,12965],[10,12611,12,12612,12,12615,12,12618],{},[14,12613],{"srcSet":12614,"type":17},"/blog_images/what-is-beta/what-is-beta.avif",[14,12616],{"srcSet":12617,"type":21},"/blog_images/what-is-beta/what-is-beta.webp",[23,12619],{"alt":12620,"src":12621,"style":12622,"width":28,"height":12623,"decoding":30,"fetchPriority":31,"className":12624},"What is Beta?","/blog_images/what-is-beta/what-is-beta.png","max-width:100%;width:600px;height:auto;aspect-ratio: 'attr(width) / attr(height)'",498,[33],[35,12626,12627],{},"Beta (β) measures how volatile a stock or portfolio is relative to its benchmark. It was introduced as the risk term in the Capital Asset Pricing Model (CAPM), where it converts market risk into an expected return, and it has since become one of the most widely quoted risk figures on a stock page.",[39,12629,42],{"id":41},[44,12631,12632,12635,12638,12641,12644],{},[47,12633,12634],{},"Beta measures how much an asset's or portfolio's return moves relative to the return of its benchmark, with 1.0 meaning it moves in line with the market.",[47,12636,12637],{},"Beta is calculated as the covariance between the asset's returns and the market's returns, divided by the variance of the market's returns.",[47,12639,12640],{},"A beta above 1.0 amplifies market moves in both directions, a beta below 1.0 dampens them, and a negative beta means the asset tends to move opposite to the market.",[47,12642,12643],{},"Beta is the risk input in the Capital Asset Pricing Model, where expected return equals the risk-free rate plus beta times the market risk premium.",[47,12645,12646],{},"Beta is estimated from historical returns and defines risk as volatility, so it can misjudge an asset whose volatility is mostly to the upside.",[39,12648,12650],{"id":12649},"what-is-beta-in-investing","What is beta in investing?",[35,12652,12653],{},"Beta is a measure of an investment's return sensitivity relative to a benchmark, expressed as a multiplier. A beta of 1.0 means the investment has historically moved roughly one-for-one with the market; a beta of 2.0 means it has moved about twice as much in the same direction.",[35,12655,12656,12657,12660],{},"Beta captures only market risk, the risk that affects every asset at once and that cannot be diversified away. It says nothing about company-specific risk, which ",[219,12658,12659],{"href":878},"diversification across enough holdings largely removes",". This is why beta appears in portfolio theory as the residual risk an investor is left holding after diversification has done its work.",[35,12662,12663],{},"Beta is always measured against something. A stock's beta against the S&P 500 and its beta against a sector index are different numbers, and neither is more correct than the other — they answer different questions.",[39,12665,12667],{"id":12666},"how-is-beta-calculated","How is beta calculated?",[35,12669,12670],{},"Beta is calculated by dividing the covariance between the asset's returns and the benchmark's returns by the variance of the benchmark's returns.",[10,12672,12,12673,12,12675,12,12677],{},[14,12674],{"srcSet":8221,"type":17},[14,12676],{"srcSet":8224,"type":21},[23,12678],{"alt":8227,"src":8228,"style":8229,"width":8230,"height":8231,"loading":670,"decoding":30},[2246,12680,12681],{"className":2248,"code":8234,"language":2250,"meta":400,"style":400},[2252,12682,12683],{"__ignoreMap":400},[2255,12684,12685],{"class":2257,"line":2258},[2255,12686,8234],{},[35,12688,12689],{},"Where R_s is the return of the asset or portfolio and R_m is the return of the benchmark or market. Covariance is a statistical measure of how much two sets of data tend to move together; variance measures how widely one set of data scatters around its own average.",[35,12691,12692],{},"In practice beta is estimated from historical data by regressing the asset's returns against the benchmark's returns over a chosen window, commonly monthly returns over three to five years. Because it is fitted to a sample, beta changes as the window moves and as the relationship between the asset and the market shifts.",[140,12694,12696],{"id":12695},"beta-calculation-example","Beta calculation example",[35,12698,12699],{},"If a stock's monthly returns have a covariance of 0.0024 with its benchmark's monthly returns, and the benchmark's monthly returns have a variance of 0.0016, the stock's beta is 1.5.",[2246,12701,12703],{"className":2248,"code":12702,"language":2250,"meta":400,"style":400},"Beta = 0.0024 / 0.0016 = 1.5\n",[2252,12704,12705],{"__ignoreMap":400},[2255,12706,12707],{"class":2257,"line":2258},[2255,12708,12702],{},[35,12710,12711],{},"A beta of 1.5 means that when the benchmark moved 1%, this stock historically moved about 1.5% in the same direction, on average. If the benchmark fell 10% over a month, a 1.5-beta stock would be expected to fall roughly 15%.",[39,12713,12715],{"id":12714},"how-does-the-capital-asset-pricing-model-use-beta","How does the Capital Asset Pricing Model use beta?",[35,12717,12718],{},"The Capital Asset Pricing Model uses beta to scale the market risk premium into the extra return an investor should expect from a specific investment. CAPM assumes a linear relationship between risk and return: the more market risk an asset carries, the higher the return it should be expected to deliver.",[2246,12720,12722],{"className":2248,"code":12721,"language":2250,"meta":400,"style":400},"Expected Return = Risk-free Rate + Risk Premium\nExpected Return = Risk-free Rate + [Beta x Market Risk Premium]\nExpected Return = Risk-free Rate + [Beta x (Market Return - Risk-free Rate)]\n",[2252,12723,12724,12729,12734],{"__ignoreMap":400},[2255,12725,12726],{"class":2257,"line":2258},[2255,12727,12728],{},"Expected Return = Risk-free Rate + Risk Premium\n",[2255,12730,12731],{"class":2257,"line":404},[2255,12732,12733],{},"Expected Return = Risk-free Rate + [Beta x Market Risk Premium]\n",[2255,12735,12736],{"class":2257,"line":401},[2255,12737,12738],{},"Expected Return = Risk-free Rate + [Beta x (Market Return - Risk-free Rate)]\n",[35,12740,12741],{},"The risk-free rate is the return on an asset assumed to carry no risk, usually proxied by a short-term government bond in the same currency. The market risk premium is the extra return an investor should expect for holding the market instead of that risk-free asset. Beta scales that premium: an investment twice as risky as the market should command twice the market risk premium.",[35,12743,12744,12745,733],{},"For example, with a risk-free rate of 2%, a market return of 8% and a beta of 1.5, CAPM expects a return of 2% + 1.5 x (8% - 2%) = 11%. That expected return is also the bar used to calculate ",[219,12746,12747],{"href":3730},"alpha, the return an investment earned above what its risk predicted",[39,12749,12751],{"id":12750},"what-does-a-beta-of-1-above-1-or-below-1-mean","What does a beta of 1, above 1 or below 1 mean?",[35,12753,12754],{},"A beta of 1.0 means the investment moves in line with its benchmark, a beta above 1.0 means it amplifies the benchmark's moves, and a beta below 1.0 means it dampens them. Beta can take any value, including negative ones.",[10,12756,12,12757,12,12760,12,12763],{},[14,12758],{"srcSet":12759,"type":17},"/blog_images/what-is-beta/beta-table.avif",[14,12761],{"srcSet":12762,"type":21},"/blog_images/what-is-beta/beta-table.webp",[23,12764],{"alt":12765,"src":12766,"style":624,"width":625,"height":12767,"loading":670,"decoding":30},"Beta example","/blog_images/what-is-beta/beta-table.png",396,[80,12769,12770,12782],{},[83,12771,12772],{},[86,12773,12774,12776,12779],{},[89,12775,8109],{},[89,12777,12778],{},"Behaviour relative to the benchmark",[89,12780,12781],{},"Typical example",[96,12783,12784,12795,12806,12817],{},[86,12785,12786,12789,12792],{},[101,12787,12788],{},"Above 1 (e.g. 2.0)",[101,12790,12791],{},"Moves in the same direction but by more. If the benchmark rises 1% in a period, the stock rises about 2%.",[101,12793,12794],{},"High-growth stocks",[86,12796,12797,12800,12803],{},[101,12798,12799],{},"Equal to 1",[101,12801,12802],{},"Moves roughly in line with the benchmark.",[101,12804,12805],{},"A broad market index fund",[86,12807,12808,12811,12814],{},[101,12809,12810],{},"Between 0 and 1 (e.g. 0.5)",[101,12812,12813],{},"Moves in the same direction but by less. If the benchmark rises 1% in a period, the stock rises about 0.5%.",[101,12815,12816],{},"Utility stocks",[86,12818,12819,12822,12825],{},[101,12820,12821],{},"Below 0",[101,12823,12824],{},"Tends to move in the opposite direction to the benchmark.",[101,12826,12827],{},"Some hedges and inverse strategies",[35,12829,12830],{},"Note that beta is symmetric. A stock with a beta of 2.0 is expected to fall about twice as far as the benchmark in a down period, not only to rise twice as far in an up one. That symmetry is exactly why beta is treated as a risk measure rather than a return measure.",[39,12832,12834],{"id":12833},"what-is-a-good-beta","What is a good beta?",[35,12836,12837],{},"A good beta is one that matches what you want the holding to do: around 1.0 to track the market, above 1.0 to accept deeper declines in exchange for amplified gains, below 1.0 to prioritise stability of value. There is no beta that is right for every investor, because beta describes exposure rather than quality.",[35,12839,12840],{},"Three practical uses of beta:",[178,12842,12843,12849,12855],{},[47,12844,12845,12848],{},[287,12846,12847],{},"Setting expectations for declines."," A portfolio beta of 1.3 implies that a 20% market fall would translate into roughly a 26% portfolio fall, which is worth knowing before it happens rather than after.",[47,12850,12851,12854],{},[287,12852,12853],{},"Understanding what you actually own."," A portfolio of 30 stocks that all have betas above 1.5 is not as diversified as the stock count suggests.",[47,12856,12857,12860,12861,12863],{},[287,12858,12859],{},"Interpreting risk-adjusted returns."," Beta is the denominator of the ",[219,12862,11834],{"href":5560},", which measures excess return per unit of market risk.",[35,12865,12866,12867,12870],{},"Reading beta alongside the actual drawdown a portfolio suffered gives a fuller picture than either number alone, because ",[219,12868,12869],{"href":1218},"drawdown records the real peak-to-trough loss"," rather than a statistical estimate of it. Portseido reports drawdown and benchmarks your portfolio against indices and ETFs from your own transaction history, so you can see how your holdings actually behaved against the market you are comparing them with.",[39,12872,12874],{"id":12873},"what-are-the-limitations-of-beta","What are the limitations of beta?",[35,12876,12877],{},"The two main limitations of beta are that it is estimated from historical data that may not describe the future, and that it defines risk as volatility rather than as the chance of permanently losing capital.",[35,12879,12880,12883],{},[287,12881,12882],{},"Beta is backward-looking."," Beta is fitted to past returns, so it can misstate current risk whenever the underlying business changes. A company that shifts to financing operations with far more debt will probably see its future return volatility rise, but a beta estimated from the pre-debt period will not show it.",[35,12885,12886,12889],{},[287,12887,12888],{},"Volatility is not the same as risk."," Beta treats every deviation from the benchmark as risk, including upside deviation.",[10,12891,12,12892,12,12895,12,12898],{},[14,12893],{"srcSet":12894,"type":17},"/blog_images/what-is-beta/beta-limitations.avif",[14,12896],{"srcSet":12897,"type":21},"/blog_images/what-is-beta/beta-limitations.webp",[23,12899],{"alt":12900,"src":12901,"style":8229,"width":8230,"height":12902,"loading":670,"decoding":30},"Beta limitations","/blog_images/what-is-beta/beta-limitations.png",348,[35,12904,12905],{},"In the example above, Stock E outperformed the market in every period and never posted a negative return, yet it carries a beta of 1.78. By beta's definition it is far riskier than the market, because its returns swung more widely. By the definition most investors actually hold — the risk of losing money permanently — it was not risky at all. Beta alone cannot tell those two cases apart.",[35,12907,12908,12911],{},[287,12909,12910],{},"Beta depends on the benchmark and the window."," The same stock will show different betas against different indices, and different betas over three years than over five. Any beta figure is only interpretable if you know what it was measured against and over what period.",[35,12913,12914],{},"Beta remains useful despite this. It is a compact description of how an investment has behaved relative to its market, which helps characterise a portfolio even when it fails as a forecast.",[39,12916,320],{"id":319},[140,12918,12920],{"id":12919},"can-beta-be-negative","Can beta be negative?",[35,12922,12923],{},"Yes. A negative beta means the asset has historically moved in the opposite direction to its benchmark, so it tends to rise when the market falls. Gold, certain hedging instruments and inverse funds sometimes show negative betas over particular periods. Negative beta assets can reduce portfolio volatility, but they also drag on returns when the market rises.",[140,12925,12927],{"id":12926},"what-is-the-beta-of-a-portfolio","What is the beta of a portfolio?",[35,12929,12930],{},"A portfolio's beta is the weighted average of the betas of its holdings, using each holding's share of the portfolio value as its weight. A portfolio that is 60% in a 1.4-beta stock and 40% in a 0.6-beta stock has a beta of (0.6 x 1.4) + (0.4 x 0.6) = 1.08. Cash has a beta of zero, so holding cash lowers portfolio beta directly.",[140,12932,12934],{"id":12933},"does-a-high-beta-mean-higher-returns","Does a high beta mean higher returns?",[35,12936,12937],{},"Not reliably. The Capital Asset Pricing Model predicts that higher beta should be rewarded with higher expected return, but that is a long-run expectation, not a guarantee for any period. A high-beta stock will amplify a falling market just as it amplifies a rising one, so higher beta buys a wider range of outcomes rather than a better one.",[140,12939,12941],{"id":12940},"what-time-period-is-beta-usually-measured-over","What time period is beta usually measured over?",[35,12943,12944],{},"Beta is most commonly estimated from monthly returns over three to five years, though data providers differ, and some use weekly returns over shorter windows. Two published betas for the same stock can differ noticeably purely because of this choice. Always check the period and frequency before comparing beta figures from different sources.",[140,12946,12948],{"id":12947},"is-beta-the-same-as-volatility","Is beta the same as volatility?",[35,12950,12951],{},"No. Volatility, usually measured as standard deviation, describes how much an asset's returns scatter on their own. Beta describes only the portion of that movement explained by the benchmark. A stock can be highly volatile and still have a low beta if its swings are driven by company-specific news rather than market moves.",[39,12953,12955],{"id":12954},"how-to-track-portfolio-risk-against-a-benchmark-in-portseido","How to track portfolio risk against a benchmark in Portseido",[35,12957,12958],{},"Portseido is a portfolio tracker that shows how your holdings have actually behaved against the market. It consolidates positions across brokers and currencies, calculates time-weighted and money-weighted returns, tracks cost basis, dividends and yield on cost, reports allocation and drawdown, and benchmarks the portfolio against indices and ETFs so you can compare your results with the index your beta would be measured against.",[35,12960,12961,12962],{},"Portseido does not calculate beta or run regressions. It tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,12963,363],{"href":361,"rel":12964},[240],[2524,12966,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":12968},[12969,12970,12971,12974,12975,12976,12977,12978,12985],{"id":41,"depth":404,"text":42},{"id":12649,"depth":404,"text":12650},{"id":12666,"depth":404,"text":12667,"children":12972},[12973],{"id":12695,"depth":401,"text":12696},{"id":12714,"depth":404,"text":12715},{"id":12750,"depth":404,"text":12751},{"id":12833,"depth":404,"text":12834},{"id":12873,"depth":404,"text":12874},{"id":319,"depth":404,"text":320,"children":12979},[12980,12981,12982,12983,12984],{"id":12919,"depth":401,"text":12920},{"id":12926,"depth":401,"text":12927},{"id":12933,"depth":401,"text":12934},{"id":12940,"depth":401,"text":12941},{"id":12947,"depth":401,"text":12948},{"id":12954,"depth":404,"text":12955},"Beta measures how much an asset's return moves relative to its benchmark. A beta of 1.0 moves with the market, above 1.0 moves more, below 1.0 moves less.",{},"/blog/what-is-beta","2022-10-27",{"title":12607,"description":12986},"blog/what-is-beta","wRaNYzIPJEQKu2HaBpdcoDWZrdInDi0FMasdL5RSIZs",{"id":12994,"title":12995,"body":12996,"description":13380,"extension":428,"meta":13381,"navigation":430,"path":13382,"publishedAt":13383,"seo":13384,"seo_description":434,"seo_title":434,"social_image":13149,"stem":13385,"updatedAt":436,"__hash__":13386},"blog/blog/what-is-dca.md","How Dollar Cost Averaging affects Portfolio Performance",{"type":7,"value":12997,"toc":13363},[12998,13001,13003,13020,13024,13027,13030,13034,13037,13040,13114,13117,13124,13131,13135,13138,13151,13154,13157,13161,13164,13177,13180,13183,13187,13190,13203,13206,13244,13251,13255,13258,13271,13278,13281,13285,13288,13314,13317,13319,13323,13326,13330,13333,13337,13340,13344,13347,13351,13354,13360],[35,12999,13000],{},"Dollar cost averaging (DCA) is one of the most widely used strategies among individual investors, and one of the most argued about. The claim made for it is that spreading purchases over time reduces the risk of paying too much for an asset just before its price falls. This article sets out what dollar cost averaging is, how it works arithmetically, and what a simulation of $SPY purchases going back to 1994 shows about how it actually affected portfolio performance.",[39,13002,42],{"id":41},[44,13004,13005,13008,13011,13014,13017],{},[47,13006,13007],{},"Dollar cost averaging is an investment strategy that splits a fixed amount of capital into equal instalments invested at regular intervals, instead of committing the whole amount in one lump sum.",[47,13009,13010],{},"Dollar cost averaging buys more shares when the price is low and fewer when the price is high, so the average cost per share ends up below the simple average of the prices paid.",[47,13012,13013],{},"Across yearly simulations of $SPY since 1994, dollar cost averaging produced an average annualized return of +10.02% against +10.42% for lump sum investing, a difference small enough to be within noise.",[47,13015,13016],{},"Dollar cost averaging reduced maximum drawdown materially in crash years, cutting the 2009 maximum drawdown of a 2008 investment from -51.13% to -43.91%.",[47,13018,13019],{},"Dollar cost averaging underperforms lump sum investing in rising markets, because each later instalment buys fewer shares at a higher price.",[39,13021,13023],{"id":13022},"what-is-dollar-cost-averaging-dca","What is dollar cost averaging (DCA)?",[35,13025,13026],{},"Dollar cost averaging, also known as DCA, is an investment strategy that divides the capital you intend to invest into equal smaller amounts and invests one of those amounts at fixed intervals, rather than investing the whole sum at once. An investor with $12,000 to deploy might invest $1,000 on the first trading day of each month for twelve months instead of $12,000 on day one.",[35,13028,13029],{},"Dollar cost averaging is designed to do two things. It reduces the risk of committing the entire amount immediately before a fall, and it removes the need to decide when the market is cheap, a judgement most investors get wrong often enough for it to cost them. The trade-off is that the capital not yet invested is not yet earning anything.",[39,13031,13033],{"id":13032},"how-does-dollar-cost-averaging-work","How does dollar cost averaging work?",[35,13035,13036],{},"Dollar cost averaging works because a fixed dollar amount buys more shares when the price is low and fewer when the price is high, which pulls the average cost per share below the simple average of the prices.",[35,13038,13039],{},"Consider $900 invested as three monthly instalments of $300 in a share whose price falls from $30 to $20 to $15:",[80,13041,13042,13057],{},[83,13043,13044],{},[86,13045,13046,13049,13051,13054],{},[89,13047,13048],{},"Month",[89,13050,5428],{},[89,13052,13053],{},"Amount invested",[89,13055,13056],{},"Shares bought",[96,13058,13059,13072,13084,13096],{},[86,13060,13061,13063,13066,13069],{},[101,13062,4458],{},[101,13064,13065],{},"$30",[101,13067,13068],{},"$300",[101,13070,13071],{},"10",[86,13073,13074,13076,13079,13081],{},[101,13075,4469],{},[101,13077,13078],{},"$20",[101,13080,13068],{},[101,13082,13083],{},"15",[86,13085,13086,13088,13091,13093],{},[101,13087,4480],{},[101,13089,13090],{},"$15",[101,13092,13068],{},[101,13094,13095],{},"20",[86,13097,13098,13102,13104,13109],{},[101,13099,13100],{},[287,13101,9147],{},[101,13103],{},[101,13105,13106],{},[287,13107,13108],{},"$900",[101,13110,13111],{},[287,13112,13113],{},"45",[35,13115,13116],{},"The average cost per share is $900 / 45 = $20.00, while the simple average of the three prices is ($30 + $20 + $15) / 3 = $21.67. The gap exists because the largest number of shares was bought at the lowest price.",[35,13118,13119,13120,13123],{},"The effect on the portfolio is larger than the effect on the average price. Investing the full $900 at $30 buys 30 shares, worth $450 at the month-three price of $15, a loss of 50%. The dollar cost averaged 45 shares are worth $675, a loss of 25%. Dollar cost averaging did not avoid the loss; it halved it. Note that averaging in this way also gives you several purchase lots at different prices, which is what makes ",[219,13121,13122],{"href":6324},"cost basis tracking"," more involved than for a single purchase.",[35,13125,13126,13127,733],{},"You can run this calculation on real tickers and intervals with the ",[219,13128,13130],{"href":13129},"/tools/dca-calculator/","free DCA calculator",[39,13132,13134],{"id":13133},"dollar-cost-averaging-example-investing-through-the-2008-crash","Dollar cost averaging example: investing through the 2008 crash",[35,13136,13137],{},"Dollar cost averaging beat lump sum investing decisively when the purchases straddled the 2008 financial crisis, because the later instalments bought shares at crash prices. The example below invests in $SPY (SPDR S&P 500 ETF Trust) starting at the beginning of 2008, just ahead of the stock market crash.",[10,13139,12,13140,12,13143,12,13146],{},[14,13141],{"srcSet":13142,"type":17},"/blog_images/what-is-dca/averaging-down.avif",[14,13144],{"srcSet":13145,"type":21},"/blog_images/what-is-dca/averaging-down.webp",[23,13147],{"alt":13148,"src":13149,"style":624,"width":625,"height":13150,"decoding":30},"DCA over bear market","/blog_images/what-is-dca/averaging-down.png",452,[35,13152,13153],{},"An investment of $10,000 in $SPY at the beginning of 2008 would result in $32,783.62 today. This is equivalent to +227.84% return or +8.76% annualized return. An investment of the same $10,000 with monthly DCA over the 12 months of 2008 would result in $38,628.44 today, or +286.28% return, or +10.03% annualized return.",[35,13155,13156],{},"The difference comes from the shares themselves. Dollar cost averaging kept buying $SPY through the financial crisis rather than committing everything at the pre-crash price. Averaging down during the crisis also reduced the pain of the recovery: the maximum drawdown experienced during 2009 was -43.91% with DCA, against -51.13% without it.",[39,13158,13160],{"id":13159},"what-happens-to-dollar-cost-averaging-in-a-rising-market","What happens to dollar cost averaging in a rising market?",[35,13162,13163],{},"Dollar cost averaging underperforms lump sum investing in a rising market, because every instalment after the first buys fewer shares at a higher price than the lump sum paid. The 2019 recovery shows the size of the gap.",[10,13165,12,13166,12,13169,12,13172],{},[14,13167],{"srcSet":13168,"type":17},"/blog_images/what-is-dca/averaging-up.avif",[14,13170],{"srcSet":13171,"type":21},"/blog_images/what-is-dca/averaging-up.webp",[23,13173],{"alt":13174,"src":13175,"style":624,"width":625,"height":13176,"loading":670,"decoding":30},"DCA over bull market","/blog_images/what-is-dca/averaging-up.png",451,[35,13178,13179],{},"In 2019, when the market recovered strongly, DCA did worse on every metric because the investor was buying fewer shares as the market climbed. With monthly DCA, an investment of $10,000 would give $15,184 today, a return of +51.84% (+14.05% annualized), compared with $17,445.64, a return of +74.46% (+19.17% annualized), without DCA.",[35,13181,13182],{},"This is the honest cost of dollar cost averaging. Markets rise more often than they fall, so the scenario where DCA lags is the more common one, and the scenario where it rescues you is the rarer one.",[39,13184,13186],{"id":13185},"is-dollar-cost-averaging-better-than-lump-sum-investing","Is dollar cost averaging better than lump sum investing?",[35,13188,13189],{},"Over the long run, dollar cost averaging and lump sum investing produced almost the same return, with lump sum slightly ahead. The comparison below simulates deploying capital with and without DCA at different starting points since 1994, investing $10,000 at the beginning of any given year against a monthly DCA over the same year.",[10,13191,12,13192,12,13195,12,13198],{},[14,13193],{"srcSet":13194,"type":17},"/blog_images/what-is-dca/historical-dca-results.avif",[14,13196],{"srcSet":13197,"type":21},"/blog_images/what-is-dca/historical-dca-results.webp",[23,13199],{"alt":13200,"src":13201,"style":5775,"width":5776,"height":13202,"loading":670,"decoding":30},"Historical return for portfolio with DCA and without DCA","/blog_images/what-is-dca/historical-dca-results.png",821,[35,13204,13205],{},"Across those yearly $SPY simulations since 1994, the average annualized return without DCA is +10.42%, and with DCA it is +10.02%. In aggregate, there is not much difference from a return perspective. Excluding the recent years (2017-present), which still have a short time horizon and can overstate the annualized return, the difference is smaller still, at +9.63% and +9.44% respectively.",[80,13207,13208,13220],{},[83,13209,13210],{},[86,13211,13212,13214,13217],{},[89,13213],{},[89,13215,13216],{},"Lump sum",[89,13218,13219],{},"Monthly DCA",[96,13221,13222,13233],{},[86,13223,13224,13227,13230],{},[101,13225,13226],{},"Average annualized return, all years",[101,13228,13229],{},"+10.42%",[101,13231,13232],{},"+10.02%",[86,13234,13235,13238,13241],{},[101,13236,13237],{},"Average annualized return, excluding 2017-present",[101,13239,13240],{},"+9.63%",[101,13242,13243],{},"+9.44%",[35,13245,13246,13247,13250],{},"The conclusion is not that one strategy wins. It is that the return difference is small, which means the choice between them should be made on the risk side rather than the return side. For most portfolios, ",[219,13248,13249],{"href":247},"how capital is split across asset classes"," does more to shape the outcome than whether it was invested all at once or in twelve instalments.",[39,13252,13254],{"id":13253},"does-dollar-cost-averaging-reduce-drawdown","Does dollar cost averaging reduce drawdown?",[35,13256,13257],{},"Dollar cost averaging reduced maximum drawdown in every crash year examined, which is where its real benefit sits. Maximum drawdown is the largest peak-to-trough fall a portfolio suffers, and it is the number that decides whether an investor sells at the bottom.",[10,13259,12,13260,12,13263,12,13266],{},[14,13261],{"srcSet":13262,"type":17},"/blog_images/what-is-dca/historical-max-drawdown-on-dca-during-market-crash.avif",[14,13264],{"srcSet":13265,"type":21},"/blog_images/what-is-dca/historical-max-drawdown-on-dca-during-market-crash.webp",[23,13267],{"alt":13268,"src":13269,"style":5775,"width":5776,"height":13270,"loading":670,"decoding":30},"Historical Max Drawdown during stock market crashes with DCA and without DCA","/blog_images/what-is-dca/historical-max-drawdown-on-dca-during-market-crash.png",183,[35,13272,13273,13274,13277],{},"A DCA-based strategy shone most in 2002, 2009 and 2020, the years when the stock market retracted sharply. In each of those years the drawdown of the dollar cost averaged portfolio was materially shallower than the lump sum portfolio's, because a portion of the capital had not yet been exposed when the fall began. If you are unsure how deep your own portfolio has fallen from its high, ",[219,13275,13276],{"href":1218},"tracking maximum drawdown"," is the measure that answers it.",[35,13279,13280],{},"What dollar cost averaging achieves is the avoidance of an extreme. Buying an asset at its highest price is always painful, and DCA makes that outcome less likely, at the cost of making the best outcome less likely too.",[39,13282,13284],{"id":13283},"when-does-dollar-cost-averaging-not-help","When does dollar cost averaging not help?",[35,13286,13287],{},"Dollar cost averaging does not help when the market rises steadily through the investment window, when the instalments are so small that trading costs eat the difference, or when the money would otherwise sit in cash for years.",[44,13289,13290,13296,13302,13308],{},[47,13291,13292,13295],{},[287,13293,13294],{},"Rising markets."," Each instalment after the first pays more per share than a lump sum would have, so the strategy gives up return.",[47,13297,13298,13301],{},[287,13299,13300],{},"Long deferral of capital."," Spreading a lump sum over three years leaves most of it uninvested for most of that time, earning nothing.",[47,13303,13304,13307],{},[287,13305,13306],{},"Small instalments with fixed costs."," A flat commission per trade is a much larger percentage of a $100 purchase than of a $1,200 one.",[47,13309,13310,13313],{},[287,13311,13312],{},"Confusing DCA with regular saving."," Investing each paycheque as it arrives is not dollar cost averaging in the strict sense, because there was never a lump sum to deploy. It is simply investing money when you get it.",[35,13315,13316],{},"The strongest criticism of dollar cost averaging is that it is a behavioural tool rather than a return-maximising one. If an investor would panic and sell after committing everything the day before a crash, dollar cost averaging is worth its small expected cost. If they would not, lump sum investing has the edge.",[39,13318,320],{"id":319},[140,13320,13322],{"id":13321},"how-often-should-you-dollar-cost-average","How often should you dollar cost average?",[35,13324,13325],{},"Monthly is the most common interval for dollar cost averaging, because it matches how most people are paid and keeps per-trade costs proportionate. Weekly instalments smooth the purchase price slightly more but multiply commissions and admin. The interval matters far less than the total window: spreading a lump sum over twelve months has a very different effect from spreading it over three.",[140,13327,13329],{"id":13328},"does-dollar-cost-averaging-work-for-individual-stocks","Does dollar cost averaging work for individual stocks?",[35,13331,13332],{},"Dollar cost averaging works mechanically for any asset, but it does not protect against a company that is permanently impaired. Averaging into a falling index buys more of a recovering market; averaging into a falling single stock can mean repeatedly buying more of a failing business. The strategy lowers your average cost, it does not improve the underlying investment.",[140,13334,13336],{"id":13335},"should-you-keep-dollar-cost-averaging-during-a-crash","Should you keep dollar cost averaging during a crash?",[35,13338,13339],{},"Continuing to invest during a crash is precisely when dollar cost averaging earns its keep, because those instalments buy the most shares per dollar. In the 2008 example, the DCA portfolio finished ahead specifically because it kept buying $SPY through the crisis. Stopping the plan at the bottom converts the strategy's main advantage into its main disadvantage.",[140,13341,13343],{"id":13342},"how-do-you-calculate-the-average-cost-of-a-dca-position","How do you calculate the average cost of a DCA position?",[35,13345,13346],{},"Divide the total amount invested by the total number of shares bought across all instalments. Nine hundred dollars invested in three $300 instalments that bought 10, 15 and 20 shares gives 45 shares at an average cost of $20.00 per share. This figure is the position's cost basis per share, and it is what your gain or loss is measured against.",[39,13348,13350],{"id":13349},"how-to-track-a-dollar-cost-averaging-plan-in-portseido","How to track a dollar cost averaging plan in Portseido",[35,13352,13353],{},"Portseido is a portfolio tracker that keeps a running record of a dollar cost averaging plan without a spreadsheet. It consolidates holdings across brokers and currencies, tracks the cost basis built up across every instalment, and calculates time-weighted and money-weighted returns, which matters for DCA because regular contributions make simple return misleading. It also reports drawdown and allocation, and benchmarks the portfolio against indices and ETFs, so you can compare your averaged-in position against the index you were averaging into.",[35,13355,13356,13357],{},"Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations, and it will not tell you whether to average in or invest a lump sum. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,13358,363],{"href":361,"rel":13359},[240],[35,13361,13362],{},"The purpose of this article is to show how dollar cost averaging affected portfolio performance in the past. Nothing contained in this article should be construed as investment advice.",{"title":400,"searchDepth":401,"depth":401,"links":13364},[13365,13366,13367,13368,13369,13370,13371,13372,13373,13379],{"id":41,"depth":404,"text":42},{"id":13022,"depth":404,"text":13023},{"id":13032,"depth":404,"text":13033},{"id":13133,"depth":404,"text":13134},{"id":13159,"depth":404,"text":13160},{"id":13185,"depth":404,"text":13186},{"id":13253,"depth":404,"text":13254},{"id":13283,"depth":404,"text":13284},{"id":319,"depth":404,"text":320,"children":13374},[13375,13376,13377,13378],{"id":13321,"depth":401,"text":13322},{"id":13328,"depth":401,"text":13329},{"id":13335,"depth":401,"text":13336},{"id":13342,"depth":401,"text":13343},{"id":13349,"depth":404,"text":13350},"Dollar cost averaging invests a fixed amount at regular intervals instead of one lump sum, lowering the risk of putting all your money in at a peak.",{},"/blog/what-is-dca","2022-07-12",{"title":12995,"description":13380},"blog/what-is-dca","epchwPOfIOSV98kWtIadCfyEp8HWYUjzq3a9XjFF90A",{"id":13388,"title":13389,"body":13390,"description":13729,"extension":428,"meta":13730,"navigation":430,"path":13731,"publishedAt":13732,"seo":13733,"seo_description":434,"seo_title":434,"social_image":13402,"stem":13734,"updatedAt":436,"__hash__":13735},"blog/blog/what-is-sharpe-ratio.md","What is Sharpe Ratio?",{"type":7,"value":13391,"toc":13712},[13392,13405,13408,13410,13427,13431,13434,13437,13441,13444,13453,13456,13476,13479,13482,13486,13489,13492,13501,13504,13507,13511,13514,13565,13568,13572,13575,13601,13607,13611,13614,13657,13660,13662,13666,13669,13673,13676,13680,13683,13687,13690,13694,13697,13701,13704,13710],[10,13393,12,13394,12,13397,12,13400],{},[14,13395],{"srcSet":13396,"type":17},"/blog_images/what-is-sharpe-ratio/what-is-sharpe-ratio.avif",[14,13398],{"srcSet":13399,"type":21},"/blog_images/what-is-sharpe-ratio/what-is-sharpe-ratio.webp",[23,13401],{"alt":13389,"src":13402,"style":13403,"width":28,"height":29,"decoding":30,"fetchPriority":31,"className":13404},"/blog_images/what-is-sharpe-ratio/what-is-sharpe-ratio.png","max-width:100%;width:700px;height:auto;aspect-ratio: 'attr(width) / attr(height)'",[33],[35,13406,13407],{},"The Sharpe Ratio is a risk-adjusted return ratio that compares an investment's return to its risk. It was created in the 1960s by Nobel laureate William Sharpe as a way to judge whether an investment portfolio was rewarded fairly for the volatility it took on.",[39,13409,42],{"id":41},[44,13411,13412,13415,13418,13421,13424],{},[47,13413,13414],{},"The Sharpe Ratio measures how much return an investment earned above the risk-free rate for each unit of volatility it took on.",[47,13416,13417],{},"The Sharpe Ratio is calculated as the investment's return minus the risk-free rate, divided by the standard deviation of the investment's returns.",[47,13419,13420],{},"A Sharpe Ratio above 1.0 is generally considered decent and above 2.0 is strong, while a negative Sharpe Ratio means the investment returned less than the risk-free rate.",[47,13422,13423],{},"The Sharpe Ratio treats all volatility as risk, so it penalises unusually large gains as heavily as large losses and ignores liquidity and tail risk.",[47,13425,13426],{},"The Sharpe Ratio is backward-looking, computed from historical returns rather than future projections.",[39,13428,13430],{"id":13429},"what-is-the-sharpe-ratio","What is the Sharpe Ratio?",[35,13432,13433],{},"The Sharpe Ratio is a measure of risk-adjusted return that tells you how much excess return an investment produced for each unit of volatility. Excess return here means the return above the risk-free rate, such as the yield on a short-term Treasury bond.",[35,13435,13436],{},"Two investments can post the same headline return while one of them swung violently to get there. The Sharpe Ratio separates those two cases by dividing the excess return by the standard deviation of returns, the standard statistical measure of how widely returns scatter around their average. Because it reduces to a single number, the Sharpe Ratio lets you score a concentrated tech portfolio and a bond fund on the same scale.",[39,13438,13440],{"id":13439},"how-is-the-sharpe-ratio-calculated","How is the Sharpe Ratio calculated?",[35,13442,13443],{},"The Sharpe Ratio is calculated by subtracting the risk-free rate from the investment's return and dividing the result by the standard deviation of the investment's returns. You need those three inputs and nothing else.",[2246,13445,13447],{"className":2248,"code":13446,"language":2250,"meta":400,"style":400},"Sharpe Ratio = (Investment Return - Risk-Free Rate) / Investment Return Standard Deviation\n",[2252,13448,13449],{"__ignoreMap":400},[2255,13450,13451],{"class":2257,"line":2258},[2255,13452,13446],{},[35,13454,13455],{},"The three inputs are:",[178,13457,13458,13464,13470],{},[47,13459,13460,13463],{},[287,13461,13462],{},"Investment return."," The return the investment or portfolio actually delivered over the measurement period.",[47,13465,13466,13469],{},[287,13467,13468],{},"Risk-free rate."," The return available with essentially no risk over the same period, usually proxied by a short-term government bond yield such as the 3-month Treasury bill.",[47,13471,13472,13475],{},[287,13473,13474],{},"Standard deviation of returns."," How much the investment's periodic returns varied around their average, expressed in the same units as the return.",[35,13477,13478],{},"All three inputs must cover the same period at the same frequency. Mixing a monthly return with an annual risk-free rate produces a Sharpe Ratio that means nothing.",[35,13480,13481],{},"Getting the return input right is the tedious part, because a real portfolio has deposits, withdrawals, dividends and holdings at several brokers. Portseido calculates time-weighted and money-weighted returns for every portfolio automatically from your transaction history, so you have a defensible return figure to feed into the Sharpe Ratio without rebuilding a spreadsheet each time.",[39,13483,13485],{"id":13484},"sharpe-ratio-calculation-example","Sharpe Ratio calculation example",[35,13487,13488],{},"A stock that returned 10% over the past year, against a 3% risk-free rate, with a 5% standard deviation of returns, has a Sharpe Ratio of 1.4.",[35,13490,13491],{},"Working through the Sharpe Ratio formula, which is the investment's return minus the risk-free rate divided by the standard deviation of its returns:",[2246,13493,13495],{"className":2248,"code":13494,"language":2250,"meta":400,"style":400},"Sharpe Ratio = (10% - 3%) / 5% = 1.4\n",[2252,13496,13497],{"__ignoreMap":400},[2255,13498,13499],{"class":2257,"line":2258},[2255,13500,13494],{},[35,13502,13503],{},"With a Sharpe Ratio of 1.4, the stock produced 1.4 percentage points of return above the risk-free rate for every 1 percentage point of volatility. Put differently, the investor was paid 1.4 units of excess return for each unit of risk carried.",[35,13505,13506],{},"Now compare it to a second stock that returned 14% over the same year with a standard deviation of 12%. Its Sharpe Ratio is (14% - 3%) / 12% = 0.92. The second stock earned more in absolute terms, but the first stock was the better risk-adjusted investment.",[39,13508,13510],{"id":13509},"what-is-a-good-sharpe-ratio","What is a good Sharpe Ratio?",[35,13512,13513],{},"A Sharpe Ratio above 1.0 is generally considered good, and a ratio above 2.0 is considered strong. The thresholds are conventions rather than rules, and they shift with the asset class and the measurement period.",[80,13515,13516,13524],{},[83,13517,13518],{},[86,13519,13520,13522],{},[89,13521,1977],{},[89,13523,2311],{},[96,13525,13526,13533,13541,13549,13557],{},[86,13527,13528,13530],{},[101,13529,12821],{},[101,13531,13532],{},"The investment returned less than the risk-free rate",[86,13534,13535,13538],{},[101,13536,13537],{},"0 to 1.0",[101,13539,13540],{},"Sub-optimal: the return did not compensate well for the volatility",[86,13542,13543,13546],{},[101,13544,13545],{},"1.0 to 2.0",[101,13547,13548],{},"Decent risk-adjusted return",[86,13550,13551,13554],{},[101,13552,13553],{},"2.0 to 3.0",[101,13555,13556],{},"Strong risk-adjusted return",[86,13558,13559,13562],{},[101,13560,13561],{},"Above 3.0",[101,13563,13564],{},"Excellent, but worth checking for a short measurement window or leverage",[35,13566,13567],{},"Judge a Sharpe Ratio in context: compare it with peers in the same asset class over the same window, not with a number from a different market or a different decade.",[39,13569,13571],{"id":13570},"what-are-the-limitations-of-the-sharpe-ratio","What are the limitations of the Sharpe Ratio?",[35,13573,13574],{},"The main limitation of the Sharpe Ratio is that it uses standard deviation as its definition of risk, which means it treats every deviation from average as bad, including large gains.",[44,13576,13577,13583,13589,13595],{},[47,13578,13579,13582],{},[287,13580,13581],{},"Upside is penalised."," A strategy that occasionally posts a huge positive month is marked down as heavily as one that posts a huge loss.",[47,13584,13585,13588],{},[287,13586,13587],{},"Tail and liquidity risk are invisible."," The Sharpe Ratio does not capture the risk that an asset cannot be sold at a fair price, nor the risk of rare, severe losses.",[47,13590,13591,13594],{},[287,13592,13593],{},"It is historical."," The Sharpe Ratio is computed from past returns, so a high ratio describes what happened, not what will happen.",[47,13596,13597,13600],{},[287,13598,13599],{},"It is easy to distort."," Measuring over a short, calm window inflates the Sharpe Ratio, because the standard deviation in the denominator is temporarily small.",[35,13602,13603,13604,733],{},"For that reason the Sharpe Ratio is best read alongside other measures, such as ",[219,13605,13606],{"href":1218},"maximum drawdown, which shows the worst peak-to-trough loss a portfolio actually suffered",[39,13608,13610],{"id":13609},"how-does-the-sharpe-ratio-compare-with-alpha-and-the-treynor-ratio","How does the Sharpe Ratio compare with alpha and the Treynor Ratio?",[35,13612,13613],{},"The Sharpe Ratio, alpha and the Treynor Ratio all adjust return for risk, but each defines risk differently, so they answer different questions.",[80,13615,13616,13627],{},[83,13617,13618],{},[86,13619,13620,13622,13625],{},[89,13621,11991],{},[89,13623,13624],{},"Risk it divides by",[89,13626,1729],{},[96,13628,13629,13637,13647],{},[86,13630,13631,13633,13635],{},[101,13632,1977],{},[101,13634,12465],{},[101,13636,12468],{},[86,13638,13639,13643,13645],{},[101,13640,13641],{},[219,13642,11834],{"href":5560},[101,13644,12005],{},[101,13646,12008],{},[86,13648,13649,13653,13655],{},[101,13650,13651],{},[219,13652,12013],{"href":3730},[101,13654,12016],{},[101,13656,12019],{},[35,13658,13659],{},"Use the Sharpe Ratio to judge a standalone portfolio, because total volatility is what its owner actually experiences. Use the Treynor Ratio when the holding sits inside an already diversified portfolio, since only its market risk survives diversification.",[39,13661,320],{"id":319},[140,13663,13665],{"id":13664},"can-the-sharpe-ratio-be-negative","Can the Sharpe Ratio be negative?",[35,13667,13668],{},"Yes. The Sharpe Ratio is negative whenever an investment's return is lower than the risk-free rate over the measurement period, because the numerator of the formula becomes negative. A negative Sharpe Ratio means the investor took on volatility and was worse off than holding a Treasury bill. Negative Sharpe Ratios cannot be meaningfully ranked against each other.",[140,13670,13672],{"id":13671},"which-risk-free-rate-should-i-use-in-the-sharpe-ratio","Which risk-free rate should I use in the Sharpe Ratio?",[35,13674,13675],{},"Use a government security whose maturity matches your measurement period and currency, most commonly the 3-month Treasury bill yield for a portfolio measured in US dollars. The point is consistency: whichever rate you choose, use the same one across every investment you compare, or differences in the risk-free rate will distort the ranking.",[140,13677,13679],{"id":13678},"does-the-sharpe-ratio-need-to-be-annualised","Does the Sharpe Ratio need to be annualised?",[35,13681,13682],{},"Yes, if you want to compare it with published figures, because Sharpe Ratios are conventionally quoted on an annual basis. To annualise a Sharpe Ratio built from monthly data, multiply it by the square root of 12; for daily data, multiply by the square root of 252, the approximate number of trading days in a year.",[140,13684,13686],{"id":13685},"what-is-the-difference-between-the-sharpe-ratio-and-the-sortino-ratio","What is the difference between the Sharpe Ratio and the Sortino Ratio?",[35,13688,13689],{},"The Sharpe Ratio divides excess return by the standard deviation of all returns, while the Sortino Ratio divides excess return only by the standard deviation of negative returns. The Sortino Ratio therefore does not penalise upside volatility. It suits strategies with deliberately lopsided return profiles, where the Sharpe Ratio would understate performance.",[140,13691,13693],{"id":13692},"can-i-compare-the-sharpe-ratios-of-two-different-funds","Can I compare the Sharpe Ratios of two different funds?",[35,13695,13696],{},"Only if both Sharpe Ratios were calculated over the same period, at the same return frequency, and with the same risk-free rate. A fund measured over a calm two-year window will show a higher Sharpe Ratio than an identical fund measured through a crash.",[39,13698,13700],{"id":13699},"how-to-track-portfolio-risk-and-return-in-portseido","How to track portfolio risk and return in Portseido",[35,13702,13703],{},"Portseido is a portfolio tracker that computes the return side of the risk-adjusted picture for you. It consolidates holdings across brokers and currencies, calculates time-weighted and money-weighted returns, tracks cost basis, dividends and yield on cost, and reports drawdown and allocation so you can see how much volatility your portfolio actually put you through. You can also benchmark a portfolio against indices and ETFs, the comparison that makes any risk-adjusted number meaningful.",[35,13705,13706,13707],{},"It suits self-directed investors who hold assets at more than one broker and want one consistent set of performance figures. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,13708,363],{"href":361,"rel":13709},[240],[2524,13711,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":13713},[13714,13715,13716,13717,13718,13719,13720,13721,13728],{"id":41,"depth":404,"text":42},{"id":13429,"depth":404,"text":13430},{"id":13439,"depth":404,"text":13440},{"id":13484,"depth":404,"text":13485},{"id":13509,"depth":404,"text":13510},{"id":13570,"depth":404,"text":13571},{"id":13609,"depth":404,"text":13610},{"id":319,"depth":404,"text":320,"children":13722},[13723,13724,13725,13726,13727],{"id":13664,"depth":401,"text":13665},{"id":13671,"depth":401,"text":13672},{"id":13678,"depth":401,"text":13679},{"id":13685,"depth":401,"text":13686},{"id":13692,"depth":401,"text":13693},{"id":13699,"depth":404,"text":13700},"The Sharpe Ratio measures return per unit of risk: an investment's return minus the risk-free rate, divided by the standard deviation of its returns.",{},"/blog/what-is-sharpe-ratio","2023-01-04",{"title":13389,"description":13729},"blog/what-is-sharpe-ratio","NZEtDFD1b93ThLJB955HOqAoJPpuScaUIb5LUDzhAPI",{"id":13737,"title":13738,"body":13739,"description":14018,"extension":428,"meta":14019,"navigation":430,"path":14020,"publishedAt":14021,"seo":14022,"seo_description":434,"seo_title":434,"social_image":13755,"stem":14023,"updatedAt":436,"__hash__":14024},"blog/blog/when-growth-stocks-pay-dividend.md","When Growth Stocks Pay Dividends - A New Opportunity?",{"type":7,"value":13740,"toc":14002},[13741,13744,13756,13758,13775,13779,13782,13788,13791,13795,13798,13801,13807,13811,13814,13817,13820,13824,13827,13830,13850,13853,13857,13860,13866,13869,13873,13876,13947,13954,13956,13960,13963,13967,13970,13974,13982,13986,13989,13993,13996],[35,13742,13743],{},"Investors have traditionally been divided into two camps: those who invest for growth and those who invest for yield. The two styles look for different things, and for decades the companies that suited each barely overlapped. When large technology companies with no dividend history start paying one, that division stops being clean, and both camps have to decide what the change actually means.",[10,13745,12,13746,12,13749,12,13752],{},[14,13747],{"srcSet":13748,"type":17},"/blog_images/when-growth-stocks-pay-dividend/when-growth-stocks-pay-dividend-cover.avif",[14,13750],{"srcSet":13751,"type":21},"/blog_images/when-growth-stocks-pay-dividend/when-growth-stocks-pay-dividend-cover.webp",[23,13753],{"alt":13754,"src":13755,"style":624,"width":625,"height":626,"decoding":30},"When Growth Stocks Pay Dividends","/blog_images/when-growth-stocks-pay-dividend/when-growth-stocks-pay-dividend-cover.png",[39,13757,42],{"id":41},[44,13759,13760,13763,13766,13769,13772],{},[47,13761,13762],{},"When a growth stock starts paying a dividend, it is signalling that the company generates more cash than it can reinvest in the business at an attractive rate of return.",[47,13764,13765],{},"A newly initiated dividend from a large growth company is usually small relative to the share price, so the dividend yield is low even though the cash amount is large.",[47,13767,13768],{},"Paying a dividend does not mean a growth company has stopped growing; it means its cash generation has outrun its reinvestment opportunities.",[47,13770,13771],{},"A dividend initiation makes a stock eligible for dividend-focused funds and indices, which widens the pool of investors who can buy it.",[47,13773,13774],{},"A growth stock that has just started paying a dividend is still valued mainly on expected growth, so its share price will move far more than its dividend income does.",[39,13776,13778],{"id":13777},"why-do-growth-stocks-usually-not-pay-dividends","Why do growth stocks usually not pay dividends?",[35,13780,13781],{},"Growth stocks usually pay no dividend because their management believes each dollar retained can be reinvested in the business at a higher return than shareholders would earn with the cash themselves. Retaining earnings is a capital allocation decision, not stinginess.",[35,13783,13784,13785,13787],{},"A company earning high returns on the capital it deploys compounds shareholder value faster by reinvesting than by distributing. Building data centres, funding research, entering new markets or acquiring competitors all consume cash that a dividend would remove. For as long as those opportunities exist and clear the company's hurdle rate, retaining earnings is the value-maximising choice, and it is why a 0% ",[219,13786,1935],{"href":1934}," is normal for a company in its expansion phase.",[35,13789,13790],{},"Growth investors accept this. They buy technology and other fast-expanding companies expecting the return to arrive as share price appreciation, and they treat current income as irrelevant to the thesis. The Magnificent Seven, the group of very large US technology companies, spent years in exactly this category.",[39,13792,13794],{"id":13793},"why-do-yield-investors-look-at-dividend-yield-first","Why do yield investors look at dividend yield first?",[35,13796,13797],{},"Yield-focused investors look at dividend yield first because it converts a dividend into a rate they can compare against a bond, a savings account or another stock. Dividend yield is the annual dividend per share divided by the current share price.",[35,13799,13800],{},"The comparison sets a floor. In 2024, short-term US government paper, proxied by the SGOV ETF, offered around 5.37% with essentially no credit risk. A stock has to offer a compelling reason to accept equity risk in exchange for a similar or lower rate, whether that reason is dividend growth, capital appreciation, or both.",[35,13802,13803,13804,13806],{},"That is why companies without a stellar growth trajectory have historically paid attractive dividends. Lacking a reinvestment story, they compete for capital on income instead. It is also why a high ",[219,13805,2024],{"href":2023}," needs checking rather than celebrating: yield rises when the share price falls, so the most generous-looking yields often belong to companies the market has marked down.",[39,13808,13810],{"id":13809},"what-changed-in-the-2024-shakeup-when-big-tech-embraced-dividends","What changed in the 2024 shakeup when big tech embraced dividends?",[35,13812,13813],{},"In 2024, large technology companies that had never paid a dividend began doing so. Meta announced a 50 cent dividend per share in February 2024, and Google's Q1 earnings released on April 26, 2024, followed suit. Both stocks rose by more than 15% overnight.",[35,13815,13816],{},"The reaction is the interesting part. A dividend, in isolation, transfers value from the company's balance sheet to shareholders without creating any; a share price rising on the announcement is the market re-reading what the dividend implies about the business. Two readings were available: that these companies now generate cash faster than they can spend it, and that management has become disciplined about returning what it cannot deploy.",[35,13818,13819],{},"Note that a first dividend from a very large, highly valued company is small as a percentage. A 50 cent quarterly payment on a share priced in the hundreds of dollars produces a dividend yield well under 1%, so the practical income is minor. The signal mattered more than the cash.",[39,13821,13823],{"id":13822},"does-paying-a-dividend-mean-a-growth-company-has-stopped-growing","Does paying a dividend mean a growth company has stopped growing?",[35,13825,13826],{},"No. Paying a dividend means a company generates more cash than it can profitably reinvest, which is a statement about the size of its cash flows rather than about the end of its growth. A business can grow revenue rapidly and still have more cash than projects to spend it on.",[35,13828,13829],{},"Three things a dividend initiation genuinely does tell you:",[44,13831,13832,13838,13844],{},[47,13833,13834,13837],{},[287,13835,13836],{},"Cash flow has matured."," The company is comfortable committing to a recurring payment, which requires predictable free cash flow rather than one good year.",[47,13839,13840,13843],{},[287,13841,13842],{},"Capital allocation has become explicit."," Management is choosing between reinvestment, buybacks and dividends in public, which gives shareholders something to hold it to.",[47,13845,13846,13849],{},[287,13847,13848],{},"The shareholder base will broaden."," Income funds and dividend-screening strategies that were previously unable to hold the stock become potential buyers.",[35,13851,13852],{},"What a dividend initiation does not tell you is what growth will do next. It also creates a constraint: dividends are sticky, because cutting one is read as distress, so a company that starts paying has committed a slice of future cash flow before it knows what it will need.",[39,13854,13856],{"id":13855},"is-a-dividend-paying-growth-stock-a-good-investment","Is a dividend-paying growth stock a good investment?",[35,13858,13859],{},"A dividend-paying growth stock can offer both share price appreciation and rising income, but it should still be judged as a growth investment, because that is where nearly all of the expected return sits. The dividend is a small addition to the thesis, not the thesis.",[35,13861,13862,13863,13865],{},"The case in favour is straightforward. These businesses continue to expand and dominate their markets, and shareholders now receive regular income on top of the share price potential. If the dividend grows from a low base, a long-term holder's ",[219,13864,222],{"href":221},", the income measured against the price they originally paid, can rise substantially over a decade even though the starting yield was under 1%.",[35,13867,13868],{},"The case for looking elsewhere is opportunity cost. A dividend does not make an expensive stock cheap. If the goal is maximising total return, smaller and less-covered companies may offer more growth per dollar invested, particularly when the large technology names have already re-rated sharply. And an investor whose actual need is current income will do better with an established payer, since a sub-1% yield funds very little.",[39,13870,13872],{"id":13871},"how-do-growth-investing-and-dividend-investing-differ","How do growth investing and dividend investing differ?",[35,13874,13875],{},"Growth investing and dividend investing differ in where the return is expected to come from: growth investing expects capital appreciation, while dividend investing expects recurring cash income. That difference drives everything else about how each is run and measured.",[80,13877,13878,13890],{},[83,13879,13880],{},[86,13881,13882,13884,13887],{},[89,13883],{},[89,13885,13886],{},"Growth investing",[89,13888,13889],{},"Dividend investing",[96,13891,13892,13903,13914,13925,13936],{},[86,13893,13894,13897,13900],{},[101,13895,13896],{},"Primary return source",[101,13898,13899],{},"Share price appreciation",[101,13901,13902],{},"Dividend income, plus modest appreciation",[86,13904,13905,13908,13911],{},[101,13906,13907],{},"Typical dividend payout ratio of holdings",[101,13909,13910],{},"0% to low",[101,13912,13913],{},"Moderate to high",[86,13915,13916,13919,13922],{},[101,13917,13918],{},"Key metrics",[101,13920,13921],{},"Revenue and earnings growth, total return",[101,13923,13924],{},"Dividend yield, payout ratio, dividend growth rate, yield on cost",[86,13926,13927,13930,13933],{},[101,13928,13929],{},"Typical volatility",[101,13931,13932],{},"Higher",[101,13934,13935],{},"Lower",[86,13937,13938,13941,13944],{},[101,13939,13940],{},"What a dividend cut means",[101,13942,13943],{},"Little; there is usually none to cut",[101,13945,13946],{},"A direct hit to the strategy's purpose",[35,13948,13949,13950,13953],{},"The two are not mutually exclusive, and a stock that pays a token dividend sits awkwardly between them. The practical resolution is to classify a holding by why you own it, not by whether it happens to pay something. If you would keep the position with no dividend at all, it is a growth holding, and it should be measured on total return rather than income. Deciding ",[219,13951,13952],{"href":247},"how you split capital between the two styles"," matters more than the label on any individual stock.",[39,13955,320],{"id":319},[140,13957,13959],{"id":13958},"why-does-a-stock-price-rise-when-a-company-announces-its-first-dividend","Why does a stock price rise when a company announces its first dividend?",[35,13961,13962],{},"A first dividend announcement usually causes a share price rise because of what it signals rather than what it pays. It tells the market that free cash flow is large and predictable enough to support a recurring commitment, and that management intends to return surplus capital. It also makes the stock eligible for income funds that previously could not buy it.",[140,13964,13966],{"id":13965},"are-dividends-or-share-buybacks-better-for-shareholders","Are dividends or share buybacks better for shareholders?",[35,13968,13969],{},"Neither is universally better. Buybacks return capital by reducing the share count, which raises earnings per share and is more tax-efficient in many jurisdictions because shareholders choose when to realise the gain. Dividends return capital as cash, which is predictable and does not depend on management timing the buyback well. Many large companies do both.",[140,13971,13973],{"id":13972},"can-a-growth-stock-become-a-dividend-aristocrat","Can a growth stock become a dividend aristocrat?",[35,13975,13976,13977,13981],{},"Only after 25 consecutive years of dividend increases while remaining in the S&P 500, which is the requirement for a ",[219,13978,13980],{"href":13979},"/blog/dividend-aristocrats/","dividend aristocrat",". A company that has just initiated its first dividend is a quarter of a century away from qualifying, regardless of how large it is or how fast the dividend grows in the meantime.",[140,13983,13985],{"id":13984},"should-i-change-my-portfolio-when-a-stock-i-own-starts-paying-a-dividend","Should I change my portfolio when a stock I own starts paying a dividend?",[35,13987,13988],{},"Not automatically. A newly initiated dividend from a large company is typically a small percentage of the share price, so it changes your portfolio's income only slightly. What does change is the bookkeeping: you now have dividend payments to record, and the position's total return has an income component that price charts alone will not show.",[39,13990,13992],{"id":13991},"how-to-track-dividend-income-from-growth-stocks-in-portseido","How to track dividend income from growth stocks in Portseido",[35,13994,13995],{},"Dividends from companies that only recently started paying them are easy to lose track of, because they are small, irregular in their first years, and often land in an account you think of as a growth account rather than an income one. Portseido records every dividend received across brokers and currencies, builds a dividend income history per holding, and folds that income into total return, so a growth position's dividends are counted rather than quietly ignored. It also reports yield on cost, which is where a small but growing dividend shows its effect over time.",[35,13997,13998,13999],{},"It suits investors who hold a mix of growth and income positions and want one consistent set of figures for both. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,14000,363],{"href":361,"rel":14001},[240],{"title":400,"searchDepth":401,"depth":401,"links":14003},[14004,14005,14006,14007,14008,14009,14010,14011,14017],{"id":41,"depth":404,"text":42},{"id":13777,"depth":404,"text":13778},{"id":13793,"depth":404,"text":13794},{"id":13809,"depth":404,"text":13810},{"id":13822,"depth":404,"text":13823},{"id":13855,"depth":404,"text":13856},{"id":13871,"depth":404,"text":13872},{"id":319,"depth":404,"text":320,"children":14012},[14013,14014,14015,14016],{"id":13958,"depth":401,"text":13959},{"id":13965,"depth":401,"text":13966},{"id":13972,"depth":401,"text":13973},{"id":13984,"depth":401,"text":13985},{"id":13991,"depth":404,"text":13992},"When a growth company starts paying a dividend it is signalling that it generates more cash than it can reinvest, changing how investors should value it.",{},"/blog/when-growth-stocks-pay-dividend","2024-04-26",{"title":13738,"description":14018},"blog/when-growth-stocks-pay-dividend","gzL78LyeI0jopm66FnP-TI-20-KfyNQ1yi59QJcLzR8",{"id":14026,"title":14027,"body":14028,"description":14375,"extension":428,"meta":14376,"navigation":430,"path":14377,"publishedAt":14378,"seo":14379,"seo_description":434,"seo_title":434,"social_image":14041,"stem":14380,"updatedAt":436,"__hash__":14381},"blog/blog/yield-on-cost.md","Yield on Cost - Definition and Formula",{"type":7,"value":14029,"toc":14359},[14030,14043,14046,14048,14065,14069,14072,14078,14081,14085,14088,14100,14109,14112,14121,14124,14142,14145,14148,14151,14155,14158,14215,14218,14224,14228,14231,14234,14237,14261,14265,14268,14275,14278,14282,14285,14311,14314,14316,14320,14323,14327,14330,14334,14337,14341,14344,14348,14351,14357],[10,14031,12,14032,12,14035,12,14038],{},[14,14033],{"srcSet":14034,"type":17},"/blog_images/yield-on-cost/yield-on-cost-cover.avif",[14,14036],{"srcSet":14037,"type":21},"/blog_images/yield-on-cost/yield-on-cost-cover.webp",[23,14039],{"alt":14040,"src":14041,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31,"className":14042},"Yield on Cost","/blog_images/yield-on-cost/yield-on-cost-cover.png",[33],[35,14044,14045],{},"Yield on cost is the metric that shows a long-term dividend investor what their patience actually bought. Dividend yield tells a prospective buyer what income a stock offers at today's price. Yield on cost tells an existing owner what the same dividend is worth against the price they paid years ago, which for a company that has raised its dividend steadily is a very different number.",[39,14047,42],{"id":41},[44,14049,14050,14053,14056,14059,14062],{},[47,14051,14052],{},"Yield on cost is a holding's current annual dividend per share divided by the average cost basis of the shares you own, expressed as a percentage.",[47,14054,14055],{},"Yield on cost is calculated as annual dividend per share divided by average cost per share, so a $3.50 dividend on shares bought at $50 is a 7% yield on cost.",[47,14057,14058],{},"Yield on cost rises over time whenever a company increases its dividend, because the numerator grows while your cost basis stays fixed.",[47,14060,14061],{},"Yield on cost is backward-looking and personal to you: two investors holding the same stock have different yields on cost because they paid different prices.",[47,14063,14064],{},"Yield on cost should not be used to decide whether to keep holding a stock, because the price you paid is a sunk cost and a new buyer would earn only the current dividend yield.",[39,14066,14068],{"id":14067},"what-is-yield-on-cost","What is yield on cost?",[35,14070,14071],{},"Yield on cost is a financial metric that measures a holding's current annual dividend as a percentage of the average cost basis of the shares, meaning what you originally paid for them. It shows the income rate your own invested capital is now earning.",[35,14073,14074,14075,14077],{},"The metric exists because a dividend grower's income and its share price both rise over time, and the standard ",[219,14076,2024],{"href":2023}," ratio hides that. Dividend yield divides the dividend by the current market price, so a company that doubles its dividend while its share price also doubles shows an unchanged dividend yield, even though every long-term holder's income has doubled.",[35,14079,14080],{},"Yield on cost holds the denominator still. Because your cost basis does not change when the market re-rates the stock, every dividend increase flows straight through to a higher yield on cost. That makes it the natural scorecard for a buy-and-hold dividend strategy.",[39,14082,14084],{"id":14083},"how-is-yield-on-cost-calculated","How is yield on cost calculated?",[35,14086,14087],{},"Yield on cost is calculated by dividing the current annual dividend per share by your average cost basis per share, then multiplying by 100 to express it as a percentage.",[10,14089,12,14090,12,14093,12,14096],{},[14,14091],{"srcSet":14092,"type":17},"/blog_images/yield-on-cost/yield-on-cost-formula.avif",[14,14094],{"srcSet":14095,"type":21},"/blog_images/yield-on-cost/yield-on-cost-formula.webp",[23,14097],{"alt":14098,"src":14099,"style":1354,"width":28,"height":1355,"decoding":30,"fetchPriority":31},"Yield on Cost Formula","/blog_images/yield-on-cost/yield-on-cost-formula.png",[2246,14101,14103],{"className":2248,"code":14102,"language":2250,"meta":400,"style":400},"Yield on Cost = (Annual Dividend Per Share / Average Cost Basis Per Share) x 100\n",[2252,14104,14105],{"__ignoreMap":400},[2255,14106,14107],{"class":2257,"line":2258},[2255,14108,14102],{},[35,14110,14111],{},"The same figure can be computed at the position level, which is often easier when shares were bought in several lots:",[2246,14113,14115],{"className":2248,"code":14114,"language":2250,"meta":400,"style":400},"Yield on Cost = (Total Annual Dividend Income From The Position / Total Amount Invested) x 100\n",[2252,14116,14117],{"__ignoreMap":400},[2255,14118,14119],{"class":2257,"line":2258},[2255,14120,14114],{},[35,14122,14123],{},"Two inputs are needed:",[178,14125,14126,14132],{},[47,14127,14128,14131],{},[287,14129,14130],{},"Current annual dividend per share."," The total dividend the company pays on one share over a year, at its current rate. For a quarterly payer, add the four most recent quarterly payments.",[47,14133,14134,14137,14138,14141],{},[287,14135,14136],{},"Average cost basis per share."," The total you paid for the shares, including commissions, divided by the number of shares. Working out ",[219,14139,14140],{"href":6324},"cost basis across multiple purchases"," is the fiddly half of the calculation.",[35,14143,14144],{},"For example, an investor who bought shares at an average cost of $50 and now receives an annual dividend of $3.50 per share has a yield on cost of $3.50 / $50 = 7%.",[35,14146,14147],{},"A second example shows how quickly the two metrics diverge. Suppose you bought at $20 a share when the dividend was $0.60, a 3% yield at the time. Ten years later the company pays $1.60 a share and the stock trades at $80. The current dividend yield is $1.60 / $80 = 2%, but your yield on cost is $1.60 / $20 = 8%. A new buyer earns 2%; your original capital earns 8%.",[35,14149,14150],{},"Rebuilding that calculation by hand means keeping every purchase price, every commission and every dividend payment straight, per holding, sometimes in more than one currency. Portseido maintains cost basis from your transaction history and reports yield on cost alongside dividend yield for every position, so the number updates itself as you buy more shares or the company raises its dividend.",[39,14152,14154],{"id":14153},"what-is-the-difference-between-yield-on-cost-and-dividend-yield","What is the difference between yield on cost and dividend yield?",[35,14156,14157],{},"Yield on cost divides the current annual dividend by what you paid for the shares, while dividend yield divides the same dividend by what the shares cost today. The numerator is identical; only the denominator differs.",[80,14159,14160,14170],{},[83,14161,14162],{},[86,14163,14164,14166,14168],{},[89,14165],{},[89,14167,2812],{},[89,14169,2425],{},[96,14171,14172,14183,14194,14205],{},[86,14173,14174,14177,14180],{},[101,14175,14176],{},"Denominator",[101,14178,14179],{},"Your average cost basis",[101,14181,14182],{},"Current market price",[86,14184,14185,14188,14191],{},[101,14186,14187],{},"Whose number is it",[101,14189,14190],{},"Personal to you",[101,14192,14193],{},"The same for everyone",[86,14195,14196,14199,14202],{},[101,14197,14198],{},"Direction over time",[101,14200,14201],{},"Rises whenever the dividend is raised",[101,14203,14204],{},"Moves with the share price",[86,14206,14207,14209,14212],{},[101,14208,11960],{},[101,14210,14211],{},"Reviewing income growth on a position you own",[101,14213,14214],{},"Comparing income across stocks you might buy",[35,14216,14217],{},"The practical consequence: yield on cost cannot be compared between investors or against a stock's published yield. If you hold a stock with a 7% yield on cost and a friend buys the same stock today at a 3% dividend yield, you are both receiving exactly the same dividend per share. Your 7% describes the price you paid, not a superior income stream.",[35,14219,14220,14221,14223],{},"A third dividend ratio completes the set. The ",[219,14222,1935],{"href":1934}," divides the dividend by the company's earnings rather than by any price, and it is the one that indicates whether the dividend can be maintained at all.",[39,14225,14227],{"id":14226},"what-is-a-good-yield-on-cost","What is a good yield on cost?",[35,14229,14230],{},"There is no universal threshold for a good yield on cost, because the figure depends entirely on how long you have held the shares and what you paid. A yield on cost of 8% is unremarkable after twenty years of dividend increases and exceptional after two.",[35,14232,14233],{},"What matters is the direction of travel. A yield on cost that climbs year after year is evidence that the company keeps raising its dividend, which is the whole thesis of dividend growth investing. A yield on cost that is flat means the dividend has not moved, and one that falls means the dividend was cut.",[35,14235,14236],{},"Judge yield on cost against its own history rather than against a benchmark:",[44,14238,14239,14249,14255],{},[47,14240,14241,14244,14245,14248],{},[287,14242,14243],{},"Rising steadily."," The dividend is growing. Companies with long records of this, such as the ",[219,14246,14247],{"href":13979},"dividend aristocrats",", are selected specifically for it.",[47,14250,14251,14254],{},[287,14252,14253],{},"Flat."," The dividend is static, so the real value of the income is being eroded by inflation.",[47,14256,14257,14260],{},[287,14258,14259],{},"Falling."," Either the dividend was reduced, or you bought more shares at a higher price, which raises your cost basis.",[39,14262,14264],{"id":14263},"does-buying-more-shares-change-your-yield-on-cost","Does buying more shares change your yield on cost?",[35,14266,14267],{},"Yes. Buying more shares changes your average cost basis, which changes yield on cost, and buying at a higher price than your original purchase will lower it even if the dividend has not changed.",[35,14269,14270,14271,14274],{},"This is where yield on cost is most often misread. An investor ",[219,14272,14273],{"href":272},"dollar-cost averaging"," into a rising dividend stock will see yield on cost climb more slowly than the dividend growth rate alone would suggest, because each new purchase drags the average cost upward. Reinvested dividends do the same thing: shares bought through a dividend reinvestment plan enter the cost basis at market price.",[35,14276,14277],{},"Neither effect is a problem, but it does mean yield on cost measures two things at once for an accumulating position: dividend growth and your purchase history. Where you want to isolate dividend growth alone, track the dividend per share rather than the ratio.",[39,14279,14281],{"id":14280},"what-are-the-limitations-of-yield-on-cost","What are the limitations of yield on cost?",[35,14283,14284],{},"The main limitation of yield on cost is that it is backward-looking and ignores the price you could sell at today, so it must not be used to decide whether to continue holding a position.",[44,14286,14287,14293,14299,14305],{},[47,14288,14289,14292],{},[287,14290,14291],{},"The cost basis is a sunk cost."," Capital tied up in a stock is worth its current market value, not what you paid. The honest comparison for a hold-or-sell decision is the current dividend yield against alternatives, not your historical yield on cost.",[47,14294,14295,14298],{},[287,14296,14297],{},"It ignores elapsed time."," Yield on cost says nothing about how many years it took to get there, so it cannot be annualised or compared across holdings of different ages.",[47,14300,14301,14304],{},[287,14302,14303],{},"It excludes capital gains."," Yield on cost counts only dividends. A holding can have a magnificent yield on cost and still have delivered a poor total return, and vice versa.",[47,14306,14307,14310],{},[287,14308,14309],{},"It flatters inaction."," Because it rises automatically with every dividend increase, yield on cost makes long-held positions look better the longer they are held, regardless of whether they are still good investments.",[35,14312,14313],{},"Use yield on cost to review how a dividend strategy has performed. Use dividend yield, total return and the payout ratio to decide what to do next.",[39,14315,320],{"id":319},[140,14317,14319],{"id":14318},"should-yield-on-cost-include-reinvested-dividends","Should yield on cost include reinvested dividends?",[35,14321,14322],{},"If reinvested dividends bought additional shares, those shares and their purchase cost belong in the cost basis, so yield on cost is calculated on the enlarged position. Excluding them overstates the ratio. The alternative convention, measuring only the original shares, answers a narrower question and cannot be reconciled with your brokerage statement.",[140,14324,14326],{"id":14325},"can-yield-on-cost-be-higher-than-100","Can yield on cost be higher than 100%?",[35,14328,14329],{},"Yes, in principle. A holding whose annual dividend has grown to exceed the original purchase price per share has a yield on cost above 100%, meaning the position now returns more than its entire cost every year. This requires decades of compounding dividend growth on a share bought at a low price, so it is rare rather than impossible.",[140,14331,14333],{"id":14332},"does-yield-on-cost-change-when-the-share-price-moves","Does yield on cost change when the share price moves?",[35,14335,14336],{},"No. Yield on cost uses your average cost basis as the denominator, and that figure is fixed by your purchase history rather than by the market. A share price collapse leaves yield on cost untouched, which is exactly why it should not be read as a measure of how the investment is currently doing.",[140,14338,14340],{"id":14339},"which-is-more-useful-yield-on-cost-or-total-return","Which is more useful, yield on cost or total return?",[35,14342,14343],{},"Total return is more useful for judging an investment, because it counts dividends and price change together and can be compared against a benchmark. Yield on cost answers a narrower question: how much income your original capital now produces. Income-focused investors track both, using total return for performance and yield on cost for income growth.",[39,14345,14347],{"id":14346},"how-to-track-yield-on-cost-in-portseido","How to track yield on cost in Portseido",[35,14349,14350],{},"Yield on cost is only as accurate as the cost basis behind it, and cost basis is the record most investors lose track of first, especially after several years of purchases, dividend reinvestments and a broker switch. Portseido rebuilds it from your transaction history, tracks every dividend received, and reports yield on cost per holding next to dividend yield, cost basis and total return. Because it consolidates positions across multiple brokers and currencies, the same figures cover the whole portfolio rather than one account.",[35,14352,14353,14354],{},"It is built for long-term dividend investors who want their income growth measured rather than estimated. Portseido tracks and reports on your portfolio; it does not give buy or sell recommendations. There is a free plan, and paid features come with a 14-day trial that does not need a credit card. ",[219,14355,363],{"href":361,"rel":14356},[240],[2524,14358,2526],{},{"title":400,"searchDepth":401,"depth":401,"links":14360},[14361,14362,14363,14364,14365,14366,14367,14368,14374],{"id":41,"depth":404,"text":42},{"id":14067,"depth":404,"text":14068},{"id":14083,"depth":404,"text":14084},{"id":14153,"depth":404,"text":14154},{"id":14226,"depth":404,"text":14227},{"id":14263,"depth":404,"text":14264},{"id":14280,"depth":404,"text":14281},{"id":319,"depth":404,"text":320,"children":14369},[14370,14371,14372,14373],{"id":14318,"depth":401,"text":14319},{"id":14325,"depth":401,"text":14326},{"id":14332,"depth":401,"text":14333},{"id":14339,"depth":401,"text":14340},{"id":14346,"depth":404,"text":14347},"Yield on cost is a holding's annual dividend per share divided by your average cost basis, showing the income rate on what you originally paid.",{},"/blog/yield-on-cost","2023-10-15",{"title":14027,"description":14375},"blog/yield-on-cost","T8GkyUnHPYIzDMmQq8sYg0SoKL0VP5jPivI_cSvnInM",1789704619794]