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RORICX, Rate of Return and Retirement Planner Calculator

Documentation pages. Examples.

The case scenarios below are of conceptual nature to better understand the RoR principle. For more hands on help with RORICX check Quick Start and How To links.

List of Content.

First Example: stock investment account

Second Example: one particular stock in several accounts

Third Example: rental property

Fourth Example: primary residence

Fifth Example: your business

Sixth Example: buying a business

First Example: stock investment account

Consider stock investment account, either with a brokerage or self-administered, many different stock positions, active trading, two regular contribution programs on the 3rd and on the 18th of the month, one withdrawal program on the 20th.

Create a new portfolio, give it a meaningful name, e.g. "eTrade" or "401k".

Now start entering transactions. You have to enter all money you brought into and out of this account.

You can enter all historical transactions before today's date, starting from the first one. If however there are too many historical records you can enter the first "fake" transaction, it should be equal to the current market value.

In the former case you'll be able calculate RoR from the first date onwards (historical RoR). In the latter case you'll be able to calculate RoR only after today's date.

When entering transactions, enter only money that you bring in or out of your account. If there was a dividend from a stock or interest from a bond and it stays within your account as cash, don't enter this transactions. If you sell some stock (regardless with a gain or a loss) and you add the proceeds to the cash portion of this account, don't enter this transaction. If after a while you applied this accumulated cash to buy another stock position don't enter this transaction.

In short don't try to track internal activity within your account. Enter only money that you bring into your account. E.g. you get a bonus on Dec.20 and you put it into this stock account - this transaction has to be entered.

Or you are buying a house and decide to take some cash from the account to help with the down payment. You have to enter a transaction (with negative sign) that accounts for the money taken out of this portfolio.

Understand the difference between buying stock from the account's cash, keeping the stock as the part of the portfolio, and withdrawing cash to buy a car.

Because your new stock is part of your portfolio and adds value to its overall market value, buying stock is an internal transaction and does not need to be entered into this program.

Because your new car is not a part of your portfolio, withdrawing money from the portfolio to buy it should be recorded. Note that because you withdrew this money, the overall market value of the portfolio will be decreased by the same amount.

Then enter three Regular Programs, one to account for transactions on the 3rd, another for the transactions on the 18th and finally the third one for transactions that happen on 20th. Remember NOT to enter the corresponding transactions on the Transactions screen. Those may be entered only once, either as part of Regular Program or adhoc Transaction List.

Don't forget to enter future transactions into RORICX as time goes by.

At any time choose an interval and calculate RoR and don't forget to give this number to your broker.

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Second Example: one particular stock in several accounts

Consider the case when you want to know the performance of one particular stock in several of your portfolios.

Create a new portfolio and give it a meaningful name, e.g. "Oracle", "IBM" or "Shell".

The portfolio you are creating may reflect this stock's positions in different accounts - in yours, your spouse's, your corporation's, your retirement accounts', etc.

Now enter the dates and full purchase prices (including commissions of course) every time you add this stock to one of your real accounts. Similarly enter dates and net sell amounts (less commissions of course).

E.g. you bought 100 shares in May 2001 in your retirement account - enter this as a transaction. Then in December 2003 you bought 200 shares into your spouses' account - enter this as a Transaction. Then you sell 50 shares in May 2007 from one of those accounts - enter this transaction. I.e. you have to enter every sell/buy of this stock that happens within any of your accounts.

Don't forget to enter every dividend, regular and special ones that you had received (note the difference how we are treating dividends here and in our First Example).

Of course every buy and sell transaction will have a different stock price, different commission (percentage wise and in absolute values), but we aren't interested in those from the RoR prospective.

However, if you wish you can include commissions as separate transactions. E.g. when buying stock you may enter two transactions: the first one for the purchase price of shares and the second one for the commission amount. You enter both as a credit to your portfolio (positive amounts) and the sum of those amounts have to be equal to the total purchase price (the alternative single transaction).

Or when selling stock instead of a single transaction with the net selling amount (debit from your portfolio, negative amount in RORICX), you can split it into two transactions. The first one is debit (negative) for the selling amount, the second one is credit (positive) for the commissions amount.

After entering those historical transactions you are ready to calculate the RoR of this particular stock.

For example, you want to calculate the RoR over the entire period you have owned this stock.

On the RoR screen, enter the date you first bought the share as the interval starting date.

Enter today's date as the end date of the interval.

For the starting portfolio market value enter zero. For the ending portfolio market value enter the sum of the current market values of your stock's position in each of your account.

Then calculate the RoR and you will know the performance of this particular stock within your accounts.

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Third Example: rental property

Assume you have a rental property. You buy a house, pay mortgage, collect rent, pay for improvements, you need to know objective measure of this investment.

As always, create a new portfolio.

Begin to add transactions for this house. Start with the down payment, renovations, advertising, legal advice, etc.

Create a regular contribution program that reflects your monthly mortgage payments. When your mortgage terms are changed (e.g. you refinance), end the current mortgage program (updating program's end date) and create a new program for the refinanced mortage.

For every tenant, you have to create a Regular Withdrawal program that reflects rental payments. As your leasing agreement changes, you have to end previous programs and start new ones with the new payment amount.

If you apply your rental income directly to the mortgage payments, then instead of two programs you may have only one. The program amount will be equal to the net difference between the two. Or instead of program don't forget to enter those monthly amounts into RORICX as adhoc transactions.

At the end of the day enter today's market value of the house and calculate RoR. Alternatively if you sell the property enter the selling price as the end date Portfolio market value and calculate RoR.

In case you sell this property you have still another way of accounting. Enter the selling price (minus commissions) as a last transaction. Then request RoR calculation entering the end market value as zero.

In any case you will have RoR - and this is the real objective measure of your investment performance.

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Fourth Example: primary residence

Assume you want to analyse your primary residence from the viewpoint of investment.

This is quite similar to the rental property example. The difference is that you'll have no rental income. But when you live in your own house you don't have to pay the rent. To accommodate for this enter the regular contribution program that is equal to the fair amount of rent that you would be paying otherwise.

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Fifth Example: your business

Assume you want to analyze a business (or in particular buying one).

As always create a portfolio with the business' name.

Of course there may be several scenarios. E.g. you can start a business from scratch, you can buy an existing business, you can inherit it, etc. Or you can own it for a long time and not be interested in its historical performance until now.

Assume in this example that you are buying a business and you want to estimate what RoR to expect.

The first transaction that you should enter against this portfolio is the purchase price. Then you have to estimate the expenses that your business pays (e.g. salary, taxes, fees, etc.) Then of course you have to enter the projected income from the business. Finally you should estimate the market value of your business about a year from now. Enter those dates and values in RoR request and estimate different scenarios.

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Sixth Example: buying a business

Consider that you are buying a business and analyzing its historical performance.

This is similar to the previous example, but instead of estimates of the future performance you can base the RoR calculation on historical data.

Analyze the books from the prospective seller and enter the data into RORICX to evaluate the RoR and obtain an objective number related to the historical performance of this investment.

The transactions and market value numbers are very similar to the Fifth Example, with the only difference that those are not estimates but are historical numbers. The only number that is not yet solid is the selling price that you'll be paying. Enter different selling numbers, obtain different RoR and use it to your advantage to make an educated decision about this important purchase, and even use it to negotiate.

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