Question on Return Calcs

[AZscorpionhunter]

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

 

[tsptalk]

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.

 

[RealMoneyIssues]

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???

 

[tsptalk]

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.

 

[RealMoneyIssues]

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...

 

[Scout333]

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%

 

[AZscorpionhunter]

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