[rraisley]

I like to keep track of how my 401k investments are doing, by calculating the simple interest for a term, either this year, or since purchase. But now, I've had to start taking the Required Minimum Distributions from the account. How, in my spreadsheet, do I consider that in my calculations?


Example, I had $100k in my account 1 year ago, and have made 10%, so now have $110k in the account. Today, I take out $5k, so I now have $105k in the account. But I've still made 10% on the account, so far. Now, say in 6 months I've made another $3k. Well, PRIOR to the distribution I made 10%, and SINCE the distribution I've made 2.86% (3/105x100), which for 6 months is 5.71% annually. But how would I calculate my average yield over those 18 months? I know the total earnings (in this case $13k) but I can't divide by $100k, because I've removed $5k of that money for part of the term (but not all).


Perhaps I'm over-complicating this?

[ebaines]

The technique I use is as follows - it's not exact but it gives a very close approximation:

a) First calculate appreciation: appreciation = ending balance - starting balance + contributions - withdrawals.

b) Then calculate the average basis of the account: Avg basis = Starting Balance + sum of each contribution (positive number) and withdrawal (negative number) times days since the contribution or withdrawal divided by total days from the start of the period to now.

c) The average appreciation during the period is then (a) divided by (b).

Here's how to apply to your example with starting balance of $100 in January 2013, withdrawal of $5 in January 2014, ending balance of $108K in July 2014 (183 days after the withdrawal and 548 days from the starting balance date):

a) appreciation = 108-100+5 = 13
b) average basis = 100 -5(183/548) = 98.33
c) calculated return from Jan 2013 to July 2014: 13/98.33 = 13.2%

Going a step further - if you want the average annual return it would be:

.

For your example that works out to:

Annual return:

[smoothy]

I just read the Quarterly statements they mail me... they are spot accurate every time.

[ebaines]

Smoothy: that's adequate for most people. But if you have multiple retirement accounts at multiple investment huses (like my wife and I do) then if you're interested in figuring out the consolidated rate of return for all retirement accounts you can use the above to figure it out.

[smoothy]

Never thought of that, I've rolled one employers 401 into the next employers... I always feared losing track of one at some point down the road.

[ebaines]

I've always rolled my old 401(k)'s from previous employers into an IRA, as has my wife. And we've made our own IRA contributions and converted what we could to Roth IRAs. Add in my 401(k) plan at work and that's 5 separate retirement accounts at three different investment houses. Juggling investments across all 5 so that in total we have the desired mix of bonds versus equities, large cap versus small cap stocks, real estate and foreign investments can get a bit complicated!

[rraisley]

Thanks, ebaines, that's the kind of thing I think I was looking for, and it seems a reasonable solution. My gut questions it a bit, thinking only that a distribution much later, after an IRA has say doubled in value, should affect the average basis less than the same amount at the beginning, but then the formula kind of takes care that. So, I agree that it sounds good, and will no doubt go that way.


Thanks for the very prompt and complete answer!

And yes, I'm combining basically all of my investments, from my IRAs to a Scottrade account, and am calculating an average return on investment, to see where I stand compared to other references.