If I understand correctly, the benchmark returns are calculated using a very simple formula:
look at how much the benchmark/index was worth at the beginning of the time period
look at how much the index was worth at the end of the time period
divide end value by beginning value, and voila
If you’re using MWR as you preferred way of tracking results, to make sure the timing and size of your cashflows are taken into account, comparing the MWR of your investments to that benchmark return value is like comparing apples and oranges. I think what would be amazing is to compute the benchmark return by checking what would have happened if you had invested the same cash flows into the benchmark (e.g., SPY for the SP&500); that way you could truly see if you did better than the benchmark.
Does it make sense, or am I missing something? If I’m correct, any thoughts on adding that feature? I’ve been looking at the different investment strategies I’m employing, trying to figure out if I’m better off following them or if I should just stick to index investing, and it feels like I’m hitting a wall where Capitally can’t help me figure that out.
I think there’s another way to get the info you’re looking for: you can use TWR to compare with the benchmark. This will tell you if the MIX (so your strategy) is better/worse.
MWR on the other hand, tells you the impact of your timing and fees vs the index.
I was thinking about doing it the way you described and arrived at the answer that TWR is better for this, and I didn’t find other apps using MWR in this way, so that could be misleading.
Check out my article on calculating returns, but I’m happy to discuss this further
Btw, in the future, I want to add Strategies, which will be designed to answer this question more thoroughly.
yes, I’m aware of that article - great job on that BTW
yes, I thought about using TWR, but unfortunately it’s not what I’m looking for because I find it too “theoretical”, as in, yes it would compare the strategy to the SP&500 index, but since by definition it ignores the size and timing of the cashflows, it doesn’t tell me if I would have been better off investing those cash flows into the index
I understand what you mean about other apps not computing benchmark returns that way, but I feel like as long as it’s an option vs. the only way to do it, maybe that wouldn’t be a big deal / confusing
I see that one component of the planned Strategies feature is to look at historical performance. Would it look at that the way I’m looking for, or differently?
I really hope there’s a solution or workaround for what I’m looking for, as I feel like the amount of insight it would bring is a killer feature so that you can use Capitally to fully oversee your investments and strategies, and adjust course if needed:slight_smile:
It depends. Because it catches the mix, then if you look at the whole portfolio, including cash, your timing will actually be included in that mix (eg. you hold more cash for a month longer).
The only thing that is not taken, is that you buy more or less of the same mix (eg. when contributing your payroll on a cadence). But this is not important when comparing the strategy - it’s important when you want to know “your” number.
Pretty similarly I think. It’s before it’s design phase, but the idea is to define the strategy - it can be one ETF or something very complex. Then the strategy’s benchmark rebalances your cashflows accordingly - so that you can compare if you’re actually following your strategy.
But if you create a strategy that you don’t plan to follow (like invest all in S&P) - you will be able to compare to it - like in your proposal.
If you’re comparing yourself to only one Benchmark, then really rethink TWR. I had similar reservations as you, but then I came around when I studied it a bit. I’m now comparing myself simply to 80/20 (V80A)
Yes, I guess I’m looking for “my” number, at least if I understood what you meant by “your number” correctly .
Yeah, I really did think of comparing my strategy’s TWR to the benchmark number shown in Capitally but it really doesn’t seem to work, and I performed some analysis on that. I exported the transactions for a particular account directly from Capitally into Excel, and used Excel to compute the MWR => I found the same number shown by Capitally, so I know I got the formulas right. I then used the STOCKHISTORY formula to look up the price of SPY on the cash flow dates to see how much SPY I would have bought or sold using the same cashflows and how many SPY shares I would have ended up with and their total value; I then calculated the MWR and got the number I was looking for.
Here are the results:
MWR (as per Capitally): 22.6% p.a.
Excel MWR: 22.7% p.a.
Benchmark (as per Capitally): 30.93% p.a.
TWR (as per Capitally): 15.35% p.a.
MWR if same cashflows were invested in SPY (as per Excel): 41.3% p.a.
So, unless I’m missing something, using the method you suggested I would have compared 15.35% to 30.93%, whereas in my case I’m comparing 22.6% to 41.3%.
Just a note that dividends were included, and obviously the dividends from my strategy were different from what the SPY dividends would have been, so I recomputed everything by excluding dividends (both on Capitally’s side and Excel). The numbers are of course different, but there’s still that huge gap between what I’m looking for vs. using the TWR. See below for reference:
MWR (as per Capitally): 19.77% p.a.
Excel MWR: 19.78% p.a.
Benchmark (as per Capitally): 30.93% p.a.
TWR (as per Capitally): 13.03% p.a.
MWR if same cashflows were invested in SPY (as per Excel): 35.02% p.a.
Sorry for the long answer, and I hope it makes sense . What am I missing?
