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RORICX, Rate of Return and Retirement Planner Calculator

Documentation pages. Rate of Return Primer.

This page is conceptual in nature. For more hands on help with RORICX check Quick Start and How To links.

Rate of Return (RoR, aka Rate of Investment, i.e. RoI) is a guaranteed bank interest rate that will yield the same results on the same investment strategy (same deposit and withdrawal dates, same amounts).

Your investment portfolio can be anything: a portfolio of stocks, rental property, business, even your own house.

RoR is a number that allows you to objectively judge the investment results and compare the portfolio performance with average market appreciation.

Every investor faces the question - "what is the result of my investment?". RoR is the single number that allows one to measure this performance. It takes into account the investment, how it was spread out over time (e.g. evenly over time, or in the beginning of the period or towards the end) and measures the portfolio performance against guaranteed rates from banks. This number allows you to compare results with other scenarios and options in the contest of the whole economic environment.

Assume that you have a virtual bank account. Every time you deposit/withdraw funds into your investment account you bring the same amounts into your virtual account.

Record only amounts that you bring in or take out of your investment account. Ignore any transactions inside your investment account.

E.g. if your investment is a stock portfolio and you receive interest from bonds or dividends from stocks and you keep these monies inside your portfolio, ignore those transactions. If however you receive an interest and instead of keeping it inside your portfolio you withdraw it, then record this transaction.

Or assume your investment is a rental property and you receive a monthly rent of 900$- and you pay a monthly mortgage $850-. You have two options: either record a withdrawal of 900$- and a deposit of 850$- towards this investment. Or alternatively record only a net withdrawal of 50$-.

Or if for example your investment portfolio consists of stocks and you decided to sell one position and you applied the proceeds to buy another (without taking money out or adding new ones), then ignore these transactions.

In short, from the viewpoint of RoR calculation we are not interested in tracking transactions within your portfolio. We are interested exclusively in the amounts and dates of transactions that only credit or debit your portfolio.

It is important to emphasize that Rate of Return is not a tracking tool to track down all the events within your portfolio. Consider your portfolio as a black box when calculating RoR. We just bring money in and take money out; what happens inside is not relevant.

The objective measure of RoR is revealed because we are not interested in the detailed day to day activity of our investment, but rather we consider it as a money making machine.

Now after making clear that we are exclusively interested in monies that come in and out of our investment lets come back to this virtual bank account.

As already mentioned we are recording the same amounts and dates that are applicable to our real investment and virtual bank account.

This virtual account should earn interest. The interest is defined by the rate and the compounding method. Obviously the higher the rate, the faster it grows. At a certain rate, the value of this virtual bank account will grow to be equal to the current market value of your portfolio (over the investment period). This rate is called the rate of return of your investment portfolio.

This virtual rate is a guaranteed bank rate so that if we follow an identical investment strategy as we did with our real investment, it yields the same end result.