However, being the financially conservative person I am ( while being socially moderate/liberal ), I tend to lean toward the more realistic determination of return. I like to look at two things...
First, simply return. Just take the current market value for all your investments and divide it by total dollars invested ( if your investment portfolio is current $115,000, but you have only invested $100,000, then your return is (115,000/100,000)-1 = .15 or 15% ). This is obviously oversimplified and does not take into account a lot of factors, but provides general idea of how you are doing.
Another thing I like to do is ( and this one usually makes me feel real good ) is to factor out the 401K employER contributions, as well as, dividends and increase in market share. In other words...
Say you only outlayed $50,000 of your own money, but you received $5000 match from employer, your market value increased by $10,000 and you received $2,000 in dividends. So, your current portfolio value is $67,000 (50000+5000+10000+2000). In this case, I would say my real return is...(67000/50000)-1 = 34%, as opposed to...(57000/50000)-1 = 14%. My reasoning here is that the employer match money and the dividends gained did not come out of my pocket, therefore, should not be part of your "total dollars invested". The $5000 from your employer and the $2000 from dividends are part of your current total market value, not the amount invested.
Like I said in the beginning, you can slice and dice these numbers until you're blue in the face. My personal goal in calculating these numbers is simply to see how much more money I have beyond the actual amount invested.
Since my divorce in 2000 ( which certainly did not help my financial situation ), I've been able to achieve a 15.3% return and a real return ( based on my definition above ) of 35.24% since the year 2000 consisting of the following mutual funds...
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