I’m fairly good at investing and finance in general, I actually work in finance although I’m still new and learning. I sorta understand Fidelitys calculations but I’d love if someone could really break it down for me to get a real understanding. They calculate both “Time-weighted” and “money-weighted” returns.
For example: my Roth account is just over 3 years old, I’ve contributed a total of $17,500 and the current value is $23,314. So my simple calculation for total return is $23k-17.5k = $5,814/17.5k = 33.223%. I realize my contributions were done monthly over 3 years so annual returns won’t be as simple as 33%/3, but probably higher than that? I put it in an online calculator and got an annual return rate of 19.52%.
Fidelity has my cumulative Time-weighted return as 3.06%, which just makes no sense to me? I had a few bad quarters (especially the first year with some -20% or -30%). But I had mostly decently positive quarters. Do the 3 negative quarters really outweigh my 9 positive quarters in their calculations?
My cumulative money-weighted return is 65.66%, but from my understanding that includes contributions? It says it reflects growth and income generated by my investments, fees and the “impact of cash flows such as deposits”. I’ve heard this is a more realistic rate of return for investors in equities (not solely etf/mutual fund investing), but I’m not sure how much cash flows impact the calculation.
Attached screenshot of Fidelity returns.
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