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12-20-2012, 09:56 AM
I've been asked this a few times over the years and it is kind of tough to explain so I thought I'd post it for future reference.
The question is, "Why is my daily return 0.01% different than someone else with the same allocation?"
Good question. The code can probably be changed, but that is the way it was written and as is, it doesn't affect the bottom line returns. It is just a rounding issue for that day, and at most it would be off by 0.01%.
Here is an example. I hope it makes sense…
Even though both of these accounts below gained 0.0221% for the day, when subtracting the prior day’s annual return from the new annual return, the rounding affected the daily return by 0.01%. But the actual new return is correct so when we calculate it the next day, it works out. It’s the rounding that makes it look off.
Account 1 in 100% S fund:
Start day = +30.4547% or 30.45%
S fund daily return: +0.0221%
New = +30.4768% or +30.48%
30.48 – 30.45 = +0.03%
Account #2 also 100% S:
Start = +30.4577% or 30.46%
S fund daily return: +0.0221%
New = +30.4798% or +30.48%
30.48 – 30.46 = +0.02%
You can see that it looks like Account 1 gained 0.01% more that day, but they actually both gained 0.0221%.
There may be a better way to show this, but I think I would have to post returns down to 4 decimal places, or I can just post the actual return of the funds, I don’t know. It was written this way and it rarely is an obvious problem, and it doesn't affect the monthly or annual return, so I took the lazy way out and ignored it. :)
The question is, "Why is my daily return 0.01% different than someone else with the same allocation?"
Good question. The code can probably be changed, but that is the way it was written and as is, it doesn't affect the bottom line returns. It is just a rounding issue for that day, and at most it would be off by 0.01%.
Here is an example. I hope it makes sense…
Even though both of these accounts below gained 0.0221% for the day, when subtracting the prior day’s annual return from the new annual return, the rounding affected the daily return by 0.01%. But the actual new return is correct so when we calculate it the next day, it works out. It’s the rounding that makes it look off.
Account 1 in 100% S fund:
Start day = +30.4547% or 30.45%
S fund daily return: +0.0221%
New = +30.4768% or +30.48%
30.48 – 30.45 = +0.03%
Account #2 also 100% S:
Start = +30.4577% or 30.46%
S fund daily return: +0.0221%
New = +30.4798% or +30.48%
30.48 – 30.46 = +0.02%
You can see that it looks like Account 1 gained 0.01% more that day, but they actually both gained 0.0221%.
There may be a better way to show this, but I think I would have to post returns down to 4 decimal places, or I can just post the actual return of the funds, I don’t know. It was written this way and it rarely is an obvious problem, and it doesn't affect the monthly or annual return, so I took the lazy way out and ignored it. :)