If you have a brokerage account with TD Ameritrade, Charles Schwab, or Merrill Edge, you can upload your monthly financial statements (pdf) to GreaterThanZero. Just go to the "Upload Statement" page and take it from there.
You can also enter data manually, e.g., by copy and paste from your monthly or quarterly statements. Go to the "View, Enter, and Edit" page. From each statement, enter the ending balance. If there were deposits or withdrawals, enter each of them under its respective date.
Your statement is probably not going to show the account balances on the days of the deposits and withdrawals. Fine. You don't need them.
No. You do not, repeat not, need the account balances on the days of the deposits and withdrawals.
If you happen to have the account balances on the dates of the deposits and withdrawals, you may want to enter them. That will allow us to calculate your time-weighted return, which is nice to have for advanced users. Nice to have, but not at all necessary.
In financial reporting, the account balance reported for a given day is the balance at the end of that day. For example, the account balance that you enter under the date Dec 31, 2007 is the balance at midnight of that day, when the new year starts. It is therefore the beginning balance of the year 2008. Do not, repeat not, enter a beginning balance for 2008 under the date Jan 1, 2008. At the end of the day Jan 1, 2008, we're already one day into the year 2008. Therefore, it is not where the beginning balance for 2008 belongs.
When entering or uploading numbers from a monthly or quarterly statement, this is really a non-issue: the ending balance from the statement goes under the last day of the month or quarter. That balance automatically becomes the beginning balance for the next month or quarter.
No. In theory, we could provide fully automated data import from brokerage accounts. However, the pricing models of the companies that provide such services are currently prohibitive for us. Right now, your only options are statement upload and manual entry.
However, you can often beat the system by scraping data from your broker's website, as follows:
For an account that undergoes deposits and withdrawals, the percent balance change is misleading. Consider this simple example: you start with $1,000, and you deposit another $1,000 every year. For simplicity, let us assume that the investment is flat, like a 0.00% money market account. The percent balance change for the first year is 100%. For the second year, it is 50%, then 33.33%, 25%, 20%, 16.67%, and so on. The constant deposit, which is of course worth the same every year, looks like less and less because the account balance is growing.
From this simple example, it should be clear that for an account with irregular deposits and withdrawals and a non-zero investment performance, the percent balance change is a rather meaningless number.
Suppose you start the year with $25,000 and end it with $45,000. In between, you deposit $15,000. That's a mattress equivalent of $40,000 and an ANP of $5,000. If that $15,000 deposit occurred at the very beginning of the year, then the investment made the $5,000 on a principal of $40,000. That is, your investment behaved like a savings account with a 12.5% annual interest rate. If the deposit occurred at the very end of the year, then the $5,000 investment gain was made on a $25,000 principal. That's a 20% savings account. If we were to show the ANP as a percentage of the beginning balance, it would always be 20%, regardless of when the deposit was made. That's misleading.
This example illustrates the fact that the proper measurement for an account with deposits and withdrawals is the FREQ, not the ANP as a percentage: the FREQ is 12.5% in the first case, where the deposit is at the very beginning of the year, and 20% in the second case. Moreover, the FREQ handles any complex combination of deposits and withdrawals: it is always the annual interest rate of the savings account that would have replicated the performance of the investment.
The FREQ answers the question, “Had I made all my deposits and withdrawals to a savings account rather than to my actual account, which annual interest rate would have taken me to the same ending balance as my actual account?” The FREQ thus measures the performance of your money. The TWR, by contrast, measures the performance of a single initial investment in your portfolio. It removes the effect of all subsequent deposits and withdrawals. The TWR is the relevant rate of return for mutual funds, because in a mutual fund, the deposits and withdrawals (viz., purchases and redemptions) are made by independent investors.
In order to calculate your TWR, we need more information than what's needed to calculate the FREQ. In addition to the beginning and and ending balances and the deposits and withdrawals in between, calculating the TWR also requires the balances on the dates of the deposits and withdrawals. These are not usually given on monthly statements, so a lot of people don't have them. That's not much of a problem as the TWR, although perhaps nice to have, is not important as a performance number for individual investors.
The fixed rate equivalent (FREQ) is an improved version of the internal rate of return (IRR). The improvement is based on academically well-established mathematical results that were first published in a 1965 research article in the journal “Management Science.”
Both the IRR and the FREQ model an account's performance via an equivalent fixed rate account. The IRR uses a model where the fixed rate account does not distinguish between positive and negative account balances. In real life, on the other hand, the interest rate that a financial institution pays on a positive balance is substantially different from the rate that it charges on a negative balance. The model that the FREQ uses takes that into account. In the abovementioned research article, it is shown that this improved model also solves the IRR's multiple solutions issue: the IRR suffers from the problem that one and the same account can have multiple rates of return. This can make performance evaluation and comparison difficult, to say the least. The FREQ does not have that problem anymore.
It's a complex algorithm designed to provide the best performance measurement given the reporting practices of financial institutions. First off, recall that account balances are end-of-day balances. As an example, the correct begin and end date for the month of November are Oct 31 and Nov 30, respectively. If you don't have balances for these dates, we'll look at other dates. For example, if you have balances for Oct 25 and Nov 25, we'll use those to calculate your November numbers.
The one thing that we do not do is to consider an end date that is past the end of the analysis period. For example, if all you have are balances for Nov 1 and Dec 1, we will not use those to calculate your November numbers, despite the fact that they're really close to the correct dates Oct 31 and Nov 30. The reason is that on the morning of Dec 1, the month of November is over. The performance results for November cannot change after that. But if we were to use your balances of Nov 1 and Dec 1, then the November performance report would be different on the morning of Dec 2 from what it was on the morning of Dec 1. That is not acceptable.
Comparisons by dollars and cents are important but at the same time misleading. That's because they do not take into account time and principal. A difference in ending balance of $5,000 is insignificant if the time horizon was 20 years and the account balance was in the millions. It is very significant if the time horizon was a year and the account balance was in the neighborhood of a hundred thousand.
A fixed rate equivalent (FREQ) of x% tells you that the account, with all its deposits and withdrawals, behaved like an x% savings account. So if the $5,000 difference in account balance between your account and the index fund alternative occurred for a 20 year time period and an account value in the millions, then the FREQs of the two accounts would differ very little, like by a fraction of a percentage point. If, on the other hand, the same $5,000 difference occurred after a year on a principal on the order of a hundred thousand, then you would see FREQ values like 10% vs. 5%. Therefore, the FREQ comparison gives you the basis for forming an opinion about your account vs. the index fund alternative.
The 1.97% you saw on the Internet is the 2011 performance of a single, initial investment to the S&P 500 index fund. What GreaterThanZero is showing you is the FREQ of a hypothetical account that held an S&P 500 index fund as its only position and was subject to the same deposits and withdrawals as your real account. In your case, you probably made a deposit in the spring of 2011. The S&P was at a year high around that time. Therefore, the hypothetical account experienced a loss on that spring deposit. As a result, for the entire year, the account behaved like a 1.18% savings account.
See the previous FAQ entry for more on how and why the FREQ is used for benchmark comparisons.
To calculate your time-weighted return (TWR), which is nice to have but not essential for your performance measurement, we need more information than what's needed to calculate the FREQ. In addition to the beginning and and ending balances and the deposits and withdrawals in between, calculating the TWR also requires the balances on the dates of the deposits and withdrawals. These are not usually given on monthly statements, so a lot of people don't have them.
Here's why the TWR is less important as a performance number then the FREQ. The FREQ answers the question, “Had I made all my deposits and withdrawals to a savings account rather than to my actual account, which annual interest rate would have taken me to the same ending balance as my actual account?” The FREQ thus measures the performance of your money. The TWR, by contrast, measures the performance of a single initial investment in your portfolio. It removes the effect of all subsequent deposits and withdrawals. The TWR is the relevant rate of return for mutual funds, because in a mutual fund, the deposits and withdrawals (viz., purchases and redemptions) are made by independent investors.