Most investors will want to have some idea of how their portfolio is progressing over the year. I try not to get too complicated - I just want an easily maintained method to give me a reasonably accurate figure for my gains or losses from my investments.
When I make a new purchase of shares or investment trusts, I will make a note of the basics - date of purchase, the purchase price, total cost and number of shares purchased. All of this information is entered into my simple spreadsheet using a separate line for each holding.
I use a simple Microsoft Works spreadsheet package that was installed on my old computer when purchased. Here’s how it looks using the same sipp portfolio used for the dividend article -
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The column headings are fairly self explanatory. I use simple formulas to calculate the total at the foot of the columns e.g. column E is =SUM(E7:E17). For the percentage calculation in F it is =SUM(E7-D7) /D7*100 (copy and paste for the lines following).
This first method is fine so long as your portfolio is fairly well established and you do little trading or regular top ups or top slicing. This is the case with my SIPP portfolio as it is now converted to drawdown.
However, if your portfolio is still in the build phase then most years you will be making regular contributions, and/or lump sum additions or withdrawals. If you have done nothing all year except make a few additions and withdrawals, it's possible that you could estimate what your returns have been with a simple calculation:
Work out the net additions or withdrawals you made during the year.
Add one half of this to the beginning value of your portfolio and deduct half from the end value.
Now divide that adjusted end value by your adjusted beginning value.
Subtract one from your answer and multiply by 100.
So let's say you start the year with a portfolio valued at £10,000, you invest a net £2,000 over the 12 months and by the end of the year your portfolio is valued at £15,000. £15,000 less £1,000 (£14K) divided by £10,000 plus £1,000 (£11K)gives you 1.27. Take one away, multiply by 100 and you get 27%.
A final method of keeping track of portfolio gains is unitisation.
Many investors will be building a portfolio over time, often many years - either by regular monthly additions or by ad hoc lump sum additions. From time to time, capital sums may be withdrawn for various reasons - planned or otherwise. One way to keep track of portfolio performance is to create ‘units’ in the same way as a unit trust fund or OEICs.
For example, when purchasing your first investment - shares or collective fund/trust/ETF, convert the total purchase price into, say £1 units (it could just as easily be £5 or £10 units).
Lets assume you buy 500 Vodafone shares @ 210p - total cost including dealing costs is £1,065 - you will have 1,065 units.
Each time you intend to inject further cash, you will need to ascertain the current value of each unit. Just ahead of the next intended purchase, the value of Vodafone shares has risen to £1,086 so each unit is now worth 102p (£1,086/1,065).
The next purchase is, say, 50 Unilever shares @ 2350p - total cost is £1,190. This will create a further 1,166.7 units (£1190/1.02). The total number of units is now 2,231.7 (1,065 + 1,166.7).
By the time of the 3rd purchase, the value of the portfolio has risen to £2,300 and each unit will therefore be worth 103p. The next purchase is 60 BHP Billiton @ 1825p - total cost £1,110. This creates a further 1,077.7 units (1,110/1.03). The total number of units has now increased to 3,309.4 (2,231.7 + 1,077.7).
Sale of Units
If money is to be permanently withdrawn, it is simply a matter of cancelling or subtracting units. So, for example, if you sold £500 worth of shares, first calculate the current price of each unit according to the value of the portfolio immediately prior to the sale/withdrawal. Lets assume it was £3,600, this would give a unit value of £1.088 - so £500 would equate to 459.5 units. The new total for remaining units is 2,849.9 (3,309.4 - 459.5)
Once the portfolio is unitised, it is simple to compare your performance to your chosen benchmark e.g. a FTSE All Share tracker fund/ETF.
As ever, slow & steady steps….