Internal Rate of Return
STeve
via web
Accidentally hit the "resolved" button on the last post, so am posting again.
I gather that MD won't do an internal rate of return for investments. I sure wish it would. I see that it'll do some kind of annualized ROI -- and I'm wondering what the difference is.
Thanks,
Steve
2 Posted by -Kevin N. on 31 Jul, 2011 02:28 AM
Hi Steve,
http://en.wikipedia.org/wiki/Internal_rate_of_return
HTH -Kevin N.
3 Posted by Steve on 31 Jul, 2011 02:36 AM
Yes, I understand. But what I'm wondering is, what's the difference between "Annual ROI" and IRR? Is Annual ROI, just ROI divided by years? And why can't MD do a real IRR? That's what you see as the performance measure for every mutual fund. I want to be able to do that same calculation on my personal accounts. In fact, the best thing would be to do an IRR that is inflation adjusted -- now that would be a sobering number!
Steve
4 Posted by -Kevin N. on 31 Jul, 2011 02:57 AM
Hi Steve,
I found this other article that seems to explain the difference between the two. It also provides an example of how to calculate IRR.
http://mindyourdecisions.com/blog/2008/11/13/calculating-the-rate-o...
HTH -Kevin N.
5 Posted by Steve on 31 Jul, 2011 04:09 AM
Thanks, Kevin.
Frankly, that's a strong argument for MD to do an IRR rather than just an ROI.
But it doesn't explain what Annual ROI means to MD. Is it the ROI for the last year, or for all years, averaged?
Steve
6 Posted by sth on 27 Oct, 2011 12:08 AM
yes, the annual ROI is not all that useful. I have one investment with 12.76% return and a 1.22 million % return. This is not a useful number for evaluating an investment.
Another one that I haven't owned very long has a 0.37% return and a -511.44% annual return. I can see that the number is big since I have owned this for 9 days. But a sign change? How does that work?
Just calculate the correct IRR and provide it on the investment performance table. This is coupled to the ability to move shares between accounts without changing the actual return on investment numbers.
This would be a high priority wish for me. Thanks
-sth
7 Posted by zeke on 27 Oct, 2011 12:22 AM
The Annualized ROI in Moneydance isn't especially useful because it tends to be incorrect.
Removed totally off-the-cuff and confused comment!
8 Posted by Steve on 27 Oct, 2011 12:48 AM
Yes, I see problems like that, too. The ROI is often just flat-out wrong. Wild numbers as sth says or less extreme, but still incorrect values such as, 2% for one year. 20% for three years, 5% for five years. I guess that's possible, but I know it's wrong because I can compare to Quicken, which I'm still running in parallel (I'm contemplating a migration because of OSX Lion).
Having those ROI numbers looking so incorrect is a strong disincentive to using MD. It's a good program in many ways, but it just doesn't do enough, or enough right, about investments.
Steve
9 Posted by zeke on 27 Oct, 2011 03:31 AM
I agree. MD has some really nice things going for it, but getting numbers for my mutual fund investments is not one of them. Some of the numbers in the MD reports look about right, but they really can't be trusted. I have to say that if I was still using Windows I would probably have stuck with Quicken for that reason.