At getquin you can decide which form of return is displayed to you. On the one hand, you can switch between the relative and the absolute return. In addition, you can optionally select in the settings whether the relative return should be displayed time-weighted. In the default setting, getquin always shows you the so-called simple relative return on your personal dashboard. This usually corresponds to the return calculation of the brokers.
If you change the return calculation to the time-weighted return, the return displayed in getquin may differ from the return displayed by your broker.
What is the time-weighted return?
In simple terms, when calculating the time-weighted return, the total investment horizon is divided into several sub-periods, for each of which the return is then calculated without taking cash flows into account.
The difference to the classical return calculation can be easily illustrated by the following example: A portfolio has the initial value of 1,000€ and stands after 10 years at 2,000€, which would suggest a return of 100%. But how would it be if the investor pays 100€ into the portfolio every year with a savings plan? This obviously has a significant impact on the actual return, i.e. the interest on the total invested capital. Exactly these effects of the payment flows are taken into account by the time-weighted return.
Why getquin shows you the time-weighted return?
The advantage of the time-weighted return is that it takes into account payments into and out of the portfolio. In other methods of calculating returns, such as money-weighted or simple returns (as explained in the example above), cash flows are not sufficiently taken into account in the calculation of the return. This complicates both the comparability with benchmarks, but especially the comparability with alternative investment opportunities. For this reason, time-weighted is standard in professional finance and is also regulatory for most financial products.
Why is the time-weighted return different from the return at my broker?
Most brokers do not display time-weighted returns to clients, but use alternative calculation methods. Therefore, if after importing your portfolio you notice differences in the returns shown, it does not mean that the import did not work correctly. The correctness of the import can be checked by the absolute returns in the portfolio, because they are independent of the time-weighted (relative) returns.
I have negative return in % but positive return in €, can this be true?
Yes! Even if it may not sound confusing at first: the time-weighted return is independent of the absolute amount of profits (and this is exactly what makes up the time-weighted return). To illustrate this, here is an extreme example. Let's say someone invests €1,000 and then suffers a 50% loss, leaving his portfolio worth only €500. Now he invests €100,000 and the market rises by 10% immediately afterwards. Thus, the total portfolio now stands at 110,550 €. The overall performance of the portfolio is negative because it fell by 50% and then rose by 10%. However, the absolute gain is €9,550.
I have positive return in % but negative return in €, can this be true?
The reverse is exactly the same: Positive relative returns are also possible in combination with negative absolute returns when calculating with the time-weighted return. To illustrate this, here is an extreme example. Let's say someone invests €1,000 and then earns a 50% return, so his portfolio is worth €1,500. Next, he deposits €100,000, but the market drops 10% right after that. This leaves the total portfolio at €91,350. The overall performance of the portfolio is positive, as it increased by 50% and then decreased by 10%. However, in absolute terms, a loss of €9,650 was achieved.
Absolute and relative return of a position are at 0, what can I do?
If the getquin app shows 0 for both the absolute and relative return for a position and your broker shows different returns for this position, but the absolute value of the position is correct, this is because there is currently not enough data available for the security in question. Since time-weighted returns require individual returns to be formed for different sub-periods, a calculation can only be made using historical price data. Getquin extends the coverage of price data on a current basis. An overview of the supported price data is provided in the following article.
With getquin you can display both simple and time-weighted returns. The time-weighted return offers considerable advantages compared to classical methods of calculating the return, especially if deposits and withdrawals have taken place in the portfolio. Since not all brokers calculate the return uniformly, the return displayed in getquin may differ from the return at your broker.