Personal Rate of Return

Your personal rate of return (RoR) helps you understand how your retirement account has performed–not just how your investments performed in the market, but also factoring in your personal investment decisions.

This return type is called a dollar-weighted return (also known as an internal rate of return or IRR). It reflects the timing and amount of your contributions and withdrawals, offering a clearer picture of your personal experience, compared to standard benchmarks that assume no activity in the account.

What Impacts Personal (Dollar-Weighted) Performance?

Most savers contribute regularly to their retirement account through payroll deductions, and these contributions–along with any withdrawals or employer contributions–impact performance. Dollar-weighted return reflects:

Contribution timing: If you contribute more during a market upswing, those contributions benefit from the growth. Conversely, contributing heavily during a downturn may lessen your overall returns, at least in the short term.
Contribution amount: Larger contributions in a strong market can significantly boost your overall return, while smaller contributions during those times have less impact.
Market fluctuations: The market's ups and downs, combined with the timing of your contributions and withdrawals, shape your personal return.

How Does Time-Weighted Performance Differ?

You may be familiar with time-weighted performance when evaluating a mutual fund or market index (e.g., the S&P 500). That method measures the return of investments, regardless of when or how much you invested, and it is often used to evaluate how well a specific fund or index has performed.

While helpful in comparing fund managers, it doesn’t reflect the impact of your personal investment timing, account activity, or the cash flow into your account.

Personal Rate of Return Explained

The following examples highlight how your personal investment decisions (e.g., when and how much you invest) impact your dollar-weighted performance, while time-weighted performance remains unaffected.

Suppose you invest in a fund that starts the year at $100 per share and grows to $110 by the end of the year–a 10% increase. Any account fully invested in this fund for the entire year would show a 10% time-weighted return. However, your dollar-weighted return may differ based on when and how much you invested. Below is an example of the same investment made at different times:

Scenario #1: Timing of Contribution Matters

January: You have a balance of $1,000 and 10 shares at $100 per share.
July: The market is up, and the share price is $125. You invest $1,000 → you buy 8 shares.
December: The fund recovers to $110 per share.

Result:

Total contributions: $1,000
Total shares owned: 18
Ending value: 18 × $110 = $1,980 (approximately a -1.36% dollar-weighted return)

Your dollar-weighted return is negative despite the fund gaining 10% over the year, because more of your money was invested during the market downturn and didn’t fully benefit from the recovery.

Scenario #2: Same Investment, Different Timing

January: You have a balance of $1,000 and 10 shares at $100 per share.
August: The market is down, and the price per share is at $80. You invest $1,000 → you buy 12.5 shares.
December: The price of the investment rises to $110 per share.

Result:

Total contributed: $1,000
Total shares owned: 22.5
Ending value: 22.5 × $110 = $2,475 (approximately a 35.34% dollar-weighted return)

Your dollar-weighted return is higher than 10% because you purchased the shares at the lowest price and benefited from the recovery.

Understanding Cumulative vs. Annualized Returns

How your personal rate of return is shown depends on the time range you select.

Cumulative Return

If you review your RoR for a period of less than 12 months, our platform will display a cumulative return. This shows your total gain or loss during the selected period, and it’s a straightforward view of how much your account has grown or diminished during that specific time.

Example: If your account grew from $10,000 to $11,000 over 6 months, your cumulative return is 10%.

Cumulative returns can help you understand how your account performed over a specific short-term window. This can be helpful when reviewing recent activity or assessing the impact of short-term market swings on your account.

Annualized Return

Annualized return shows the average rate of return over each 12-month period in your account, including the effect of compounding your investment returns, capital gains, interest, and dividends. It gives you a sense of how consistently your account has grown or declined year over year, helping you evaluate long-term progress.

Example: If your account grew 30% over 3 years, the annualized return is about 9.1% yearly. That means on average, you earned just over 9% per year during that period, even if some years were higher or lower.

An annualized rate of return can help you compare how your account performed across different time frames, even if your actual returns varied year to year.