Fidelity Rate of Return Estimator
$
Value of portfolio at the start of the period.
$
Total cash added minus cash withdrawn during the period.
$
Value of portfolio at the end of the period.
Personal Rate of Return (Money-Weighted)
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Investment Gain/Loss ($)
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Return Calculation Methodology
This calculator uses the Modified Dietz Method, an industry-standard approximation for the Money-Weighted Return (IRR) used by brokerages like Fidelity when exact daily cash flow dates are generalized.
How Does Fidelity Calculate Rate of Return?
Investors often notice that the "Personal Rate of Return" displayed on their Fidelity dashboard differs from the simple percentage gain of the funds they own. This is because Fidelity uses a specific calculation method known as the Money-Weighted Rate of Return (often referred to as Internal Rate of Return or IRR), rather than a simple Time-Weighted Return.
The Difference: Money-Weighted vs. Time-Weighted
Understanding the distinction is crucial for interpreting your portfolio's performance:
- Personal Rate of Return (Money-Weighted): This method accounts for the timing and size of your cash flows (deposits and withdrawals). If you add a large sum of money right before the market drops, your personal return will suffer more than the fund's official return. This reflects your actual experience as an investor.
- Investment Rate of Return (Time-Weighted): This measures the performance of the underlying investments themselves, ignoring your deposits and withdrawals. This is the number typically seen on a mutual fund's fact sheet.
The Math Behind the Calculation
While Fidelity's internal systems run a complex daily iterative calculation to find the exact IRR, you can estimate this figure using the Modified Dietz Method, which is what the calculator above uses. The formula assumes that, on average, your external cash flows (deposits or withdrawals) occur in the middle of the period.
The Formula:
Return = (Gain or Loss) / (Beginning Balance + (0.5 × Net Cash Flows))
Where:
Gain or Loss = Ending Balance – Beginning Balance – Net Cash Flows
Example Calculation
Imagine you started with $10,000. Halfway through the year, you deposited $5,000. By the end of the year, your account value is $16,000.
- Investment Gain: $16,000 (End) – $10,000 (Start) – $5,000 (Deposit) = $1,000 Gain.
- Average Capital Employed: $10,000 + (0.5 × $5,000) = $12,500.
- Personal Rate of Return: $1,000 / $12,500 = 8.00%.
Note that a simple calculation ($1,000 gain on $15,000 total invested) might suggest a 6.6% return, but the Money-Weighted method gives you credit for the fact that the $5,000 deposit was only invested for half the time.