7 October 2012

Watch the money-weighted rates of return on funds

Most investors find it difficult enough to understand the performance data they are given by providers of investment funds. Few, however, will realise that these numbers can be quite distorted as they usually are not calculated on a money-weighted basis. This difference, while small on an annual basis, can add up to quite a substantial amount if the investor holds the fund for a number of years. The cumulative loss can reach 60 per cent over 15 years as has been reported in a new book by investment fund pioneer John Bogle.