How to Calculate What Your Investments Actually Earned

The Basic Formula: Gain Divided by Starting Amount

Investment return is the profit or loss you made on money you put into an investment, shown as a percentage. The simplest way to calculate it is: take the money you have now, subtract what you started with, then divide by what you started with. Multiply by 100 to turn it into a percentage.

If you invested $1,000 and it grew to $1,200, your gain is $200. Divide $200 by $1,000 and you get 0.20, or 20% return. That works whether you invested in a stock, a mutual fund, or a bond—the math is the same.

This basic calculation works when you invest a lump sum once and hold it without adding or withdrawing money. Most people, though, add money regularly—monthly contributions to a 401(k), for example—which makes the calculation more complex.

Key Takeaways

• Simple return divides your total gain by your starting investment amount and converts to a percentage; it works only when you invest once and never add money.
• Time-weighted return removes the effect of deposits and withdrawals, showing how the investment itself performed independent of your cash flow.
• Money-weighted return (also called internal rate of return) accounts for when you added or withdrew money, showing the return on your actual dollars.
• Most brokerage statements show either simple return or money-weighted return; knowing which one you are looking at prevents misreading your performance.
• Comparing returns fairly requires using the same method for all investments and accounting for fees, taxes, and the time period over which you measured.

Why Adding Money Changes the Calculation

When you contribute regularly—say, $500 a month into a mutual fund—the money you added later didn't have as much time to grow. A dollar you invested in month one had 12 months to earn returns; a dollar you invested in month 12 had zero months. Treating all your money the same way would give you a misleading picture of how well the investment performed.

Imagine you invested $1,000 in January and the fund lost 10% by June, leaving you with $900. Then you added $1,000 in July. By December, the fund gained 20% from its June low, bringing your total to $2,080. Your simple gain is $80 on $2,000 invested, or 4%. But the fund itself went down 10% then up 20%—it didn't return 4%. The confusion happens because you added money at the worst time.

This is why brokerage firms and retirement plan statements use different return methods depending on what they are trying to show you.

Time-Weighted Return: What the Investment Itself Did

Time-weighted return removes the effect of your deposits and withdrawals. It shows how the investment performed independent of when you added money. This is the fairest way to compare one fund or stock to another, because it isolates the investment's performance from your personal cash flow.

Calculating time-weighted return by hand is tedious—you have to break the period into segments between each deposit or withdrawal, calculate the return for each segment, then link them together using a formula. Most investors never do this manually. Instead, your brokerage statement or fund company provides it.

If you are comparing two mutual funds to decide which one to hold, time-weighted return is what you want. It tells you which fund's manager did a better job, separate from the luck of when you happened to invest.

Money-Weighted Return: What Your Actual Dollars Earned

Money-weighted return, also called internal rate of return (IRR), accounts for when you added or withdrew money. It shows the actual return on the dollars you had in the investment at each point in time. This is more relevant to your personal financial picture because it reflects your real experience.

Going back to the earlier example: you invested $1,000 in January, lost 10%, added $1,000 in July, then gained 20%. Your money-weighted return would be lower than the time-weighted return because half your money arrived after the loss and caught only the recovery. Your actual dollars earned less than the investment itself did.

Brokerage statements often show money-weighted return because it answers the question most people ask: "How much did my account grow?" It is the return on your actual cash flow, not a theoretical return on a fixed investment.

Accounting for Fees and Taxes in Your Return

The return shown on your statement is usually the gross return—the gain before fees and taxes are subtracted. If a mutual fund returned 8% but charged 0.5% in annual fees, your net return was 7.5%. Over decades, that fee difference compounds into thousands of dollars.

Taxes are trickier because they depend on your tax bracket and whether the investment is in a taxable account or a tax-deferred account like a 401(k) or IRA. A 10% return in a taxable brokerage account might become 7% after taxes if you are in a 30% tax bracket. The same 10% return in a 401(k) is not taxed until you withdraw, so your account statement shows the full 10%.

When comparing investments, compare apples to apples: if one return is after fees and one is before, the comparison is meaningless. Your brokerage statement should disclose fees clearly; if it does not, ask for a fee breakdown or look for it in the fund's prospectus.

Annualized Return: Comparing Investments Over Different Time Periods

If you held an investment for three years and it returned 24%, that sounds better than an investment that returned 8% over one year. But the three-year investment returned 8% per year on average, so they performed identically. Annualized return converts any return into an annual rate so you can compare investments held for different lengths of time.

The formula is: (Ending Value ÷ Starting Value) raised to the power of (1 ÷ Number of Years), then subtract 1 and multiply by 100. For the 24% return over three years: ($1,240 ÷ $1,000) = 1.24, raised to the power of (1 ÷ 3) = 1.0745, minus 1 = 0.0745, or 7.45% annualized. (The slight difference from 8% is because of compounding.)

Most brokerage statements calculate this for you. When you see "annualized return" or "average annual return," that is what it means. It is the standard way to compare fund performance across different time periods.

Reading Your Brokerage Statement: Which Return Are You Looking At

Your statement likely shows multiple return figures, and they may not all be the same number. A typical statement includes:

• Period return: the gain or loss from the start to the end of the statement period, usually one quarter or one year.
• Year-to-date return: the gain or loss from January 1 to today.
• Annualized return: the average annual return over a longer period, often three, five, or ten years.
• Total return: the return including reinvested dividends and interest, which is usually what you want to look at.

The statement should label which method was used (time-weighted or money-weighted). If it does not, call your brokerage and ask. For a 401(k) or IRA, the statement usually shows money-weighted return because you want to know how your account balance grew. For a mutual fund you are considering buying, the fund company publishes time-weighted return so you can compare it fairly to other funds.

Ignore returns shorter than one year unless you are day-trading. A fund that returned 2% in three months might return 8% annualized, or it might return -10% next quarter. Short-term returns are noise. Look at one-year, three-year, five-year, and ten-year returns to see the real pattern.

Frequently Asked Questions

What is the difference between total return and price return?

Total return includes dividends and interest reinvested back into the investment. Price return shows only the change in the investment's value itself. For stocks, total return is almost always higher because it includes dividend payments. Use total return when comparing investments, because it shows the full picture of what you earned.

How do I calculate return if I withdrew money before the end?

If you withdrew money partway through, you need money-weighted return to account for the timing. Your brokerage can calculate this for you. If you are doing it by hand, you would need to treat the withdrawal as a negative deposit and use the internal rate of return formula, which is complex enough that a spreadsheet or financial calculator is worth using.

Why is my fund's return different from the return shown on my statement?

The fund company publishes time-weighted return (how the fund performed), while your statement shows money-weighted return (how your money performed). If you bought the fund at different times or added money regularly, these will differ. Both numbers are correct—they just answer different questions.

Should I use simple return or annualized return to compare two investments?

Use annualized return if the investments were held for different lengths of time. If both were held for the same period, simple return works, but annualized return is clearer because it shows the yearly rate. Always use annualized return when comparing a one-year investment to a five-year investment.

Does return include the money I contributed, or just the gain?

Return is calculated as a percentage of what you invested, not as a dollar amount. A 10% return on $1,000 is $100 in gain. Your statement shows both the dollar gain and the percentage return; the percentage is what matters for comparing performance across different account sizes.