MONEY · INVESTING
The fund says +3.44%. You are down $444.
Two people, the same fund, the same contributions, opposite results. Neither got it wrong, and the fund is not lying: they are not measuring the same return.
By the Yoseri News desk · · 5 min read
You put $300 a month into the same fund as a colleague, for two years. At the end, the fund reports +3.44% over the period. Your colleague is up $744. You are down $444.
Nobody got it wrong. You simply did not go through the same months as your colleague, in the same order.
The two sequences
The assumptions: $300 a month for 24 months, so $7,200 contributed. Twelve months at +1.5% a month, twelve months at −1.2%. The fund goes through exactly the same months in both cases — only the order changes.
| Order of the months | Contributed | Final balance | Your result |
|---|---|---|---|
| Rise first, fall after | $7,200 | $6,756 | −$444 |
| Fall first, rise after | $7,200 | $7,944 | +$744 |
In both cases the fund reports the same +3.44%. And it is right: that is what one dollar left invested from the first day to the last actually did.
Why the $1,188 gap
Because you never had the same amount invested from one month to the next. In month 1 you have $300 exposed to the market. In month 24 you have close to $7,000.
If the fall comes at the end, it hits all of your capital. If it comes at the start, it hits the crumbs — and the rise that follows applies to everything you have contributed since, bought cheaper.
The fund measures what one dollar did over the period, without caring how many you had. That is the time-weighted return. Yours is money-weighted: it accounts for when you contributed, and how much.
What it does not mean
That the fund served you badly. The two figures answer two different questions, and both are legitimate: "was this investment good?" and "how much did I make?". Confusing them leads to switching funds for a reason that has nothing to do with the fund.
That contributing steadily is a bad idea. The opposite: it is precisely because you contribute throughout that you also buy during the falls. The favourable sequence in the table is not luck, it is the normal case for a young portfolio — early-year falls land on very little capital.
And that this calculation predicts anything. Two years is short. Over a short period the order of the months weighs more than their average — which is what our entry on variance says.
And for you, what does that mean?
Take your statement. Compare two figures: what you have contributed in total, and what your account is worth today. The difference is your real result, in dollars. It is the only one that works at the supermarket.
The fund’s published return does something else: it compares two funds with each other, over the same period. It never described you.
Yoseri’s Investments page shows both side by side, with what you contributed and when.
Where the figures come from
The maths in this article starts from the assumptions written above. Run them again with your own figures — you should land on the same numbers.
Yoseri News is an educational publication. Nothing in this article is investment advice, a recommendation to buy or sell, or tax advice. Yoseri is registered as neither an adviser nor a dealer with any market authority.