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Thread: Question on Return Calcs

  1. #1

    Default Question on Return Calcs

    I really appreciate all the efforts to maintain this forum and I find it a most helpful resource.

    Can someone please explain to this newbie how the "S" fund can gain 0.80% for this last week and many people who were all in (100% allocated to S for the week) gained anywhere from 0.73% to as much as 0.90% on their Yearly % ???? Surely this can't be due to rounding errors? Funny thing also is that the people with the highest yearly % were the ones who posted yearly gains in excess of 0.80% while those who have the lower annual % posted gains of less than the stated 0.80%. Is there something I'm missing or is there some formula errors in the spread sheet??? Thanks Wayne


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  3. #2

    Default Re: Question on Return Calcs

    Hi AZ -

    Prior balance and return make a difference and you can't add percentages. They get compounded.

    Here's an extreme example to show how / why:

    Account "A" started at $50K and it was up 100% before last week (=$100K), and that week it made 10% (+$10K), so the account is now $110,000 and up 120%. (60K / 50K). It went from +100% to +120% and "looks" like a gain of 20%.

    Account "B" account started at $50K and it was up 20% before last week (=$60K), and that week it made 10% (+$6K), so the account is now $66,000 and up 32%. (16K / 50K). It went from +20% to +32% and "looks" like a gain of 12%.

    Despite both being up 10% for the week, Account A went from being +100% to +120% (20% increase in total return.) Account B went from +20% to being up 32% (12% increase in total return.)

    I hope that helps.
    Tom
    Market Commentary | My Blog | TSP Talk Plus | |

    I am not a Registered Investment Advisor and this is not investment advice. Please do your own due diligence.

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  5. #3

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    Default Re: Question on Return Calcs

    Quote Originally Posted by tsptalk View Post
    Hi AZ -

    Prior balance and return make a difference and you can't add percentages. They get compounded.

    Here's an extreme example to show how / why:

    Account "A" started at $50K and it was up 100% before last week (=$100K), and that week it made 10% (+$10K), so the account is now $110,000 and up 120%. (60K / 50K). It went from +100% to +120% and "looks" like a gain of 20%.

    Account "B" account started at $50K and it was up 20% before last week (=$60K), and that week it made 10% (+$6K), so the account is now $66,000 and up 32%. (16K / 50K). It went from +20% to +32% and "looks" like a gain of 12%.

    Despite both being up 10% for the week, Account A went from being +100% to +120% (20% increase in total return.) Account B went from +20% to being up 32% (12% increase in total return.)

    I hope that helps.
    But I thought all these calcs were solely %% based, not $$ based???
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  7. #4

    Default Re: Question on Return Calcs

    Quote Originally Posted by RealMoneyIssues View Post
    But I thought all these calcs were solely %% based, not $$ based???
    They are. I just used $$ in the example. The basic premise is that returns are compounded and can't just be added together.
    Tom
    Market Commentary | My Blog | TSP Talk Plus | |

    I am not a Registered Investment Advisor and this is not investment advice. Please do your own due diligence.

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  9. #5

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    Default Re: Question on Return Calcs

    Quote Originally Posted by tsptalk View Post
    They are. I just used $$ in the example. The basic premise is that returns are compounded and can't just be added together.
    Oh, gotcha. If you look at the formulas, it tells the story. I have been trying to get the spreadsheet to show me monthly returns, but I keep messing it up. I may try again soon as I am curious how all my IFTs have been doing monthly...
    Rules:
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  11. #6

    Default Re: Question on Return Calcs

    Real, You can use Tom's Spreadsheet which is based on % earned and lost. i.e. You can record all IFTs within the current month and the spreadsheet gives you the current month's return as well as year to date return %. Allows you to compare monthly returns. For example, you could show transaction 1's date range as Jan. 1 to Jan. 31 with 100% allocated to the S fund.

    http://www.tsptalk.com/utilities/tsptalk.xls

    Closing 2010 Prices 13.4882 14.2295 15.2084 21.2445 20.0089
    1 13.4882 14.2295 15.2084 21.2445 20.0089 0% 0% 0% 0% 0% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

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  13. #7

    Default Re: Question on Return Calcs

    Simple vs Coumpound, the light has come on. Guess that's why I was an engineer and not an accountant. TY all! v/r AZ

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