I am looking for a metric to track the performance of investments in a security over time. I know what I have in mind but I am not sure how to map it onto a known metric. I want to answer the question, “Given a series of securities purchases and dividends, what annual interest rate would have given the same return?” I.e. similar using the Future Value computation to compute R but for a series. Is there such a metric?
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2$\begingroup$ Are you thinking of the Internal Rate of Return (IRR)? From your description that is what it sounds like. $\endgroup$– nbbo2Jul 3, 2020 at 12:47
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$\begingroup$ @noob2 I think you are right. IRR just about does what I want. It is just missing a way to add outside investments to the system (vs re-invested dividends). I suppose I could compute the weighted averages of the IRRs to handle cash inflows. $\endgroup$– ToasterJul 3, 2020 at 13:04
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1$\begingroup$ Most important is to define clearly what is "the portfolio". This will clarify what are "internal" and "external" cash flows. If the portfolio has an account to hold cash from dividends, then a dividend payment is an internal cash flow. The IRR calculation involves external cash flows, including an artificial 'liquidation cash flow' at the end. $\endgroup$– nbbo2Jul 3, 2020 at 13:09
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$\begingroup$ @noob2 Well said. Would you know of any software that computes this metric, portfolio IRR? $\endgroup$– ToasterJul 3, 2020 at 19:10
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