SIMON BROWN: How to track your portfolio returns yourself

How’s your portfolio doing? It’s probably not having a great 2022. With everything under pressure, there has been nowhere to hide and, frankly, the temptation is to just log off from your online broker and ignore what’s happening in markets.

This sounds completely silly but, for a long-term investor, immersing yourself in the daily noise of the markets serves no real purpose, except to either thrill us on green days or depress us on the red days.

But what does matter is how your portfolio has been doing over time and, importantly, how it compares to your benchmark. The reason we need to know this is simple. If a benchmark, such as the top 40 index or even the global MSCI world index, is doing better than our best effort, we’d be better off with an exchange traded fund.

Your portfolio returns over one and three years matter — but your broker probably doesn’t supply this information, so you’ll have to do it yourself.

This is easy enough as we can just unitise our portfolio, much like a unit trust. Initially, this requires a bit of work, but then keeping it up to date is a simple process.

To start with, use today’s total value of your portfolio, which is, say, R65,000. To unitise, you simply decide that you’ll create 1,000 units (or how many you want) and divide that into the R65,000 portfolio value, which means each unit is worth R65.

Now, let’s jump forward a year and assume you haven’t added or removed any money from the portfolio and the value is now R70,000. You may have received dividends, or done transactions and incurred costs. But all of that is reflected in that value of R70,000 — and hence a unit price of R70 (as there are still only 1,000 units).

This is 500c growth per unit, or 7.7%. Nice, but what did your benchmark do? I test against the benchmark on an annual and three-year period. I don’t expect to beat the benchmark every year, but I need to beat it more times than not, and I certainly need to be beating it over three years.

The next step is to adjust for money added or removed from your portfolio. Here, we increase or decrease the number of units.

Let’s say you added another R5,000 into your portfolio today so, with the units at R70, you’re adding 71.4 new units. The maths is the R5,000 divided by the R70 unit value. You now have 1,071.4 units, up from the 1,000 you had before.

Now maybe you need R7,000 for an emergency, so you need to sell and withdraw some cash. The unit cost is still R70 and taking out R7,000 means you have 100 fewer units (R7,000/R70), taking your new total units to 971.4.

Growing (or shrinking) your portfolio value adjusts price per unit, while adding or removing money adjusts the number of units. Keeping these records means you always know your performance and how well you’re doing.