In the chart below, the blue line shows an investor's account balance over time. The yellow line shows what would have happened had the same deposits and withdrawals been made to an S&P 500 index fund. GreaterThanZero lets you view this chart for different benchmarks and various time periods.

To play with our interactive charts, take the GreaterThanZero Test Drive.

Comparisons by dollars and cents are important. But they don't tell the whole story. That's because they don't take into account time and principal. For example, a gain of $1,000 made on a $10,000 principal within a year is worth more than the same $1,000 made on a $1,000,000 prinicipal over ten years. What's needed is a comparison by an appropriate rate.

In the absence of deposits and withdrawals, measuring performance by rate is easy: the rate of return is the percent change of the principal, annualized to account for time. In our example, the principal changed from $38,238.30 to $51,157.18, as shown by the blue bars below. But most of that change was due to deposits: had the money been kept under the mattress, it would still have grown to $49,613.30, as shown by the yellow bar. Only $1,543.88 was performance gain, on an “elusive” principal that changed with every deposit.

To see more charts, take the GreaterThanZero Test Drive.

To arrive at a rate of return that is appropriate for an “elusive principal,” that is, in the presence of deposits and withdrawals, one must ask, “Had I put my money in a savings account instead of investing it, what interest rate would have taken me to the same ending balance?” Or, equivalently, “If I view my investments as a black box, then imagine there’s a savings account inside the black box, what was that savings account's annual interest rate?” That rate is the account's fixed rate equivalent (FREQ). So a FREQ of x% means you were effectively running an x% savings account.

In our example, the FREQ of the investor's account is 3.57%. Had the same deposits been made to the S&P 500 instead, the FREQ would have been 1.65%. In other words, for this time period and given this investor's deposits, the choice between the investor's strategy and an S&P 500 index fund boiled down to the choice between a 3.57% savings account and a 1.65% savings account.

Understanding the performance of your investments and comparing it to alternatives such as index funds is particulary important if you do your own stock trading or pay an advisor to make investment decisions for you. In that case, you're already spending a lot of time or money. You may want to find out if that time or money was well-spent. Remember, putting it all in a Vanguard Target Retirement fund costs little money and no time. Are you really beating that? Is your 401k plan beating it?

To experience the performance measurement and benchmark comparisons that GreaterThanZero offers, please take our Test Drive. To learn more about the fixed rate equivalent (FREQ) and how it resolves the multiple solutions issue that plagues the classic internal rate of return (IRR), please go to our Help & Resources page.

To use GreaterThanZero on your own financial account(s), you must first sign up. Then you need to get the following data into GreaterThanZero:

• Account balances at suitable intervals, preferably end-of-month balances
• Dates and amounts of deposits and withdrawals to and from the account

If you have an Ameritrade, Schwab, or Merrill Edge brokerage account, you can enter data by uploading your monthly statements. This has been measured to take 1 min 15 sec total time per month. For all other brokerages and 401k providers, you will have to copy and paste balances and cash flows from your brokerage's website or your monthly statement into GreaterThanZero. This may take several minutes each month.