When you invest with a Roboadvisor, they usually display your investment returns in your dashboard or in your performance summary page.
You may have come across the term ‘simple returns’.
Here are some examples:
Screenshot of simple return of a moneyowl portfolioScreenshot of the returns from an example Endowus portfolio
Simple returns basically shows how much profit you made with your investment.
Formula: Net gains / Total invested amount X 100%
So, if you had invested $1,000 in January and your portfolio at the end of Dec is valued at $1,200. You have made $200. Your simple return would be $200/$1000 = 20%
But sometimes, the dashboard may show a time-weighted return or money-weighted return and the value may be drastically different from your simple returns.
Screenshot of time-weighted return of the same moneylowl portfolioTime-weighted return of a stashaway portfolio
So which metric should I, the average investor, use?
Why are they so different?
TL;DR: Simple returns are more meaningful for typical investors;