Internal Rate of Return (IRR)
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Internal Rate of Return (IRR) Our club has been using Bivio for a little over a year now - its a great service - Club Accounting is a breeze and the support team, published documentation, and webinars are a great help in answering most questions that we may have. On the Performance Bench mark report, we have noticed that the we now have a value for the Internal Rate of Return (IRR). This value used to be N/A until recently. We have a few questions about this value - 1) Does the IRR include amounts that we may have "invested" as Cash with the broker? or does it just include the performance of stocks we've invested in? (I believe that its the former) 2) Are expenses reflected in some way? If so, how? Thanks in advance for your help! Hi Leonard,
The Performance Benchmark report shows the IRR for your club, as a whole,
and compares this IRR to what you would have had if you had invested in an Index
Fund, rather than your club. Since it considers all the investments made in the
club, it does, indeed, include amounts invested as cash with the broker.
Expenses are reflected, because they reduce the value of the club at the end of
the measured period. If they had not been incurred, the IRR would have been
higher.
IRR is a complicated topic, so if this doesn't answer you, or you have more
questions, let us know.
Rip West
bivio.com Hi Leonard, Thank you for your kind comments. We are glad to hear we've been able to help you get your new club started successfully. IRR is very useful for your club to keep an eye on. It gives you feedback on how well you are making your investing decisions. In a nutshell, your goal is to invest so your money grows in your club portfolio at a rate faster than it would if you invested in a different investment. The performance benchmark report is a true apples to apples comparison. This is important because the timing of your cash flows will affect your investment returns. You might be interested in a presentation we did about benchmarking your portfolio. You can find it here: http://www.bivio.com/hn/benchmarking-your-portfolio.pdf You might also be interested in this recent club cafe discussion: http://www.bivio.com/club_cafe/mail-thread?p=75288600003 I think it's important for a club to keep an eye on how successful they are. As a new club, if you are learning to invest, you might not be beating a benchmark yet. But, keeping an eye on your relative return will help you focus on what is important when making your investment decisions. We suggest using IRR as part of a portfolio review in your monthly club meetings. If you have time to join us for our Club Meeting Meeting webinars on the first Thursday of every month, you will see the portfolio review process demonstrated using a real club portfolio. It's a good way to see how IRR might fit into your club discussions and decision making. -- Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio |
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