Endowus values transparency and wants you to understand your returns net of all fees in a clear and precise way. A better understanding of performance is a better understanding of your investment portfolio and how it is tracking towards your goals. This leads to smarter investing and better outcomes.

We do not include your cash balance(s) in our return calculations.

Dollar value gain or loss

The dollar gain or loss is a simple measure of how your portfolio has grown (both realised and unrealised), net of Endowus Access Fees charged and trailer fee rebates received in a given period. The market changes of your portfolio are calculated by taking your ending balance plus any redemptions made in that period, minus any investments and the starting balance of that period.

Example: Imagine you make an initial investment of $100 three years ago, then invest $100 two years ago, then redeem $100 one year ago. Your current value is $150 and you collected $30 in trailer fee rebates and paid $20 in Endowus Access Fees.

+ $150 Ending balance
- $0 Starting balance
- $200 Investments
+ $100 Redemption
+ $30 Trailer fee rebate
- $20 Access Fees

= $60 gain

Total return

The total return is your gain (or loss) divided by your weighted average net investment amount as long as you are invested. In the finance industry, this is known as the Modified Dietz Method. We use this method so that the amount of money is appropriately weighted based on when it was invested or redeemed when calculating returns.

Example: Imagine on Day 1 you make an investment of $10. On Day 99, it has grown to $12, a 20% increase. Then you make an investment of $1,000 on Day 100, so your total ending balance is $1,012.

On Day 100, if you were to not use the total return method we employ, you would calculate your returns as $2 (your gain) divided by $1,010 (your net investment amount), or 0.20%, which would not be a fair representation of your investment return.

With the total return method, your return is adjusted based on your average net investment amount. In the case of the scenario above, you would have a total return of 18.00%.

Time-weighted return

The time-weighted return is your return taking away the effects of the size and timing of your investments and redemptions. This is the best metric for comparison to other investments or benchmarks.

Example: Imagine you are investing a monthly recurring amount of $1,000 for 12 months in a 60% stocks, 40% bonds portfolio. The portfolio returned 6% for the last 12 months, so your time-weighted return will be 6% (minus fees, plus trailer rebates), as it ignores the effects of your monthly recurring cash flow.

If we included the effect of your monthly recurring cash flow and assumed the 6% return was even throughout the year (i.e. a monthly return of 0.49%), you would end up with a total return number of 3.22%, which would not be representative of how the portfolio performed versus other investment options.

Note that it is possible for your time-weighted return to be negative even though you have a positive total return and annualised internal rate of return. This can be the case based on the size and timing of your investments.

Example: Imagine you invest $100, and the portfolio goes down 7% over the first month. You then invest $1,000 and the portfolio goes up by 5% over the following month. Your time-weighted return will be the return of the investment, ignoring the size and timing of your cash flow (1-7%)*(1+5%) = -2.35%. Your total return will be +4.33% because of the relatively larger amount of money you invested before the portfolio increased in value.

Annualised internal rate of return

The annualised internal rate of return is also known as the money-weighted rate of return. This figure takes into account the size and timing of your investments and redemptions, as well as asset growth.

The annualised internal rate of return is a very helpful metric for telling you how hard your money is working in totality. It includes outflows from you, such as investments and fees, and the inflows to you, such as the proceeds from redemptions, dividends, interest, trailer fee rebates, as well as the size and timing of those events. In Excel or Google Sheet, you can calculate this metric by using the XIRR function on your investment cash flows.

Example: Imagine you have the following cash flows:

Scenario A:
$100 investment on Day 1
$100 investment on Day 5
$100,000 investment on Day 100
$10,000 redemption on Day 200
$110,000 value on Day 365 (1 year)

= 30.03% annualised internal rate of return

If we flip the timing of cash flows, the return could change quite drastically.

Scenario B:
$100,000 investment on day 1
$100 investment on day 5
$100 investment on day 100
$10,000 redemption on day 200
$110,000 value on day 365 (1 year)

= 20.65% annualised internal rate of return

Scenario A has a higher return than Scenario B, despite the same net investment and ending value. This is because of the weighted amount of money contributing to the investment throughout the year.

If we stretch the end value date by another year, the annualised internal rate of return changes drastically:

Scenario C:
$100,000 investment on day 1
$100 investment on day 5
$100 investment on day 100
$10,000 redemption on day 200
$110,000 value on day 1096 (3 years)

= 6.70% annualised internal rate of return

Scenario B and C have the exact same cash flow and ending value, but the length of time to reach that ending value has changed, and hence the very different result.

Annualised returns for periods of less than one year will not be shown as they may show some misleading numbers for a short time period.

Example: Imagine on the first day of investing, your portfolio goes up by 1%. As only one day has passed, your annualised internal rate of return would be over 3,600%. If another day passes and your investment value does not change, your return would drop to 515%. Given the dynamic of this calculation, we prefer to not show it until a reasonable amount of time has passed and it is providing a helpful statistic on your returns, which we put as one year.

Returns can be distracting in the short-term from the much more important facet of investing, the probability of reaching your financial and life goals. That being said, returns are important to understand so you can have a better and more informed investment experience.