Real average rate of return on IRA investement

Rovs

New Member
Joined
Jan 20, 2010
Messages
3
I have a spreadsheet with the following columns:
A= count of years
B= year
C= iRA Balance at start of year
D= yearly contribution
E= IRA Ending value

I can get the average yearly interest rate of the entire portfolio. Unfortunatly this rate includes my contributions so I believe the rate of return is artifically high. My contributions make it look like I am getting a higher rate of return than if I had not made IRA contributions. I need a way to calculate the real average yearly interest rate I made on the account minus (or taking into concideration) the money I put into it.

Thanks in advance
 

Rovs

New Member
Joined
Jan 20, 2010
Messages
3
I may have a solution myself but I am not sure. If I have made $100,644 return on a $192,519 investment, I have made a 52.28% ROI. If that investment was over 13 years, would the annual ROI be 52.28/13 or 4.02%? The $192,519 was not a lump sum but spread over various payments over the 13 years so the above may not be correct. Anyone have a comment?
 

AdamL

Well-known Member
Joined
Sep 25, 2008
Messages
767
would the annual ROI be 52.28/13 or 4.02%?
No, it would be less, based on the compound interest formula:

A=P(1+r)^n

Solving for r:

r=(A/P)^(1/n)-1
=((100644+192519)/192519)^(1/13)-1
=3.2878%
 

Rovs

New Member
Joined
Jan 20, 2010
Messages
3
Hello Adam

I see your point but from my reading, the P in the formula only applies to one initial payment. Since this $192519 was actually paid in small parts over a 13 year period, wouldn't the calculation be off?

Thanks in advance
 

Forum statistics

Threads
1,085,565
Messages
5,384,474
Members
401,903
Latest member
MarBer

Some videos you may like

This Week's Hot Topics

Top