How does Selma calculate returns?
Earning returns on your investments is the reason why you started investing your money. But despite the importance, there isn’t a one-and-only standard way to calculate how much you earned with your investments. Rather, there are many different ones, with their own pros and cons.
This is why we picked the one that is the most often used and gives you a clear idea of how those investments have done regardless of how much you added or took out money. This is important if you add money regularly, or if dividends are paid out. 💪
This standard is called time-weighted returns.
In a nutshell: How time weighted returns work.
Imagine you start with 10’000 CHF in the first year, and add another 5’000 CHF in the beginning of the 2nd year.
- During the 1st year you earn +10%.
- In the 2nd year markets drop with -8%
To make sure your %-figure isn’t messed up and stays comparable, time-weighted returns focus on the actual performance, and show you the performance regardless of money inflows or outflows.
For the example above your average time-weighted performance is thus +1.2%.