Calculating Investment Returns

Investment is an initial forfeit of something we value in exchange for the anticipated benefit of getting back more than we put in. The difference between what we put in and what we got back is the return; we invest in order to yield this return. Investment performance measurement is the quantification of the results achieved by an investment program. The measurement of performance starts with the calculation of return. The periodic change in the value of a portfolio and the resultant growth of assets over time are the most basic component of performance. Particular return calculation techniques are required to both recognize and isolate the effects of investor and manager decisions on performance, and measure performance over single and multiple time periods. Money-weighted return calculations are used to measure the performance of an investment portfolio, and time-weighted return calculations are used to measure the performance of its manager.