If you've ever wondered how investment performance is calculated in your M1 Invest Accounts, you've come to the right place!
On the Portfolio tab for each of your Invest Accounts, you will see a Gain and Return value showing how your investments are performing. Your “Gain” value is a dollar amount split into market gain and earned dividends while your “Return” value is a percentage.
M1 calculates the return on your portfolio using money weighted rate of return (MWRR). We feel MWRR most accurately tracks your actual gains and losses because it considers your:
How is MWRR calculated?
MWRR is your Pie’s internal rate of return.
Here’s an example:
Suppose you invest $10,000 into a Slice of your Pie at the beginning of the year and sell that Slice for $11,000 the next year. During that time, you also received $10 in dividends.
Simple rate of return:
(11,000 – 10,000) / 10,000 = 10%
In this equation, r will represent your Pie’s MWRR.
Present Value of outflow = Present Value of inflow
As you can see, a simple rate of return does not consider the impact of the $10 dividend while the MWRR takes all cash flows over the investment period into account.
While MWRR is a helpful measure of your investment performance, it's important to remember that it's not the only metric to consider. It is important to understand the differences between MWRR and other standard calculations to accurately assess the performance of your investments.