Real average rate of return on IRA investement

[Rovs]

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]

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]

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]

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