How to measure your portfolio's return

• Simple gain: what it is worth less what it cost. Easy, but blind to time and dividends.
• Total return: the gain plus the dividends you were paid.
• Money-weighted return: how your own dollars did, given when you put them in.

Take what your investments are worth, subtract what you paid for them (brokerage included), and divide by what you paid. Shares bought for $8,000 and worth $10,000 are up $2,000, or 25%.

It answers "am I ahead?", but not "how fast?". 25% in one year and 25% over ten years look the same. And it leaves out dividends.

On the ASX a large part of the long-run return has come from dividends, not price. Total return adds the dividends you received to the gain. If those shares also paid $1,200 in dividends, the total return is $3,200, or 40%.

Franking credits are a further benefit on top, which most return figures leave out because their value depends on your tax rate. See franking credits explained.

Made-up example: you invest $10,000 on 1 January. By 30 June it is worth $11,000, up 10%. That day you add another $10,000. By 31 December the whole portfolio is worth $20,000.

• Simple gain: you put in $20,000 and have $20,000. 0%.
• Time-weighted return: up 10% in the first half, then down 4.8% in the second ($21,000 to $20,000). Linked together, about +4.8% for the year. This measures the investments, as if no money came or went, and is how funds report their performance.
• Money-weighted return: 0%. Your second $10,000 went in just before the fall, so your money, overall, made nothing. This measures your experience, including your timing.

Neither is wrong. To compare your choice of investments with a fund, use time-weighted. To know what your money actually earned, use money-weighted, also called the internal rate of return.

A return over several years is easier to compare as a yearly (annualised) rate. 40% over five years is about 7% a year, not 8%, because each year's growth builds on the last. Be wary of a yearly figure from a short period: 3% in a month is not 36% a year.

A benchmark tells you whether picking your own investments beat simply buying the market. For an Australian share portfolio, the usual one is the S&P/ASX 200. Compare fairly:

• Put the same money into the benchmark on the same days you added to or took from your portfolio.
• Treat dividends the same on both sides: either include them in both or leave them out of both.
• Compare over the same period, ideally several years.
• Pick a benchmark that matches what you hold. A portfolio half in US shares needs a mix.

Do fees and brokerage count?

Yes. They are part of what you paid, so they reduce your return. That is why the cost base includes brokerage.

Should I include tax?

Returns are usually shown before your own tax, because it depends on your situation. Capital gains tax is only due when you sell.

What return is good?

It depends on what you hold and the risk you take. Compare against a benchmark for the same kind of investments rather than a single number.

Portfoli.au shows, for each investment and the whole portfolio, the gain not yet sold, gains from sales, estimated dividends, total return and a yearly return that counts when each dollar went in and came out. The value chart can show an ASX 200 line built from the same money on the same days, price only on both sides, so the comparison is fair.

What each figure means, or start free.

The methods here are the standard ones used across the funds industry, and the figures are made up to show how they differ. Past returns are not a guide to future returns. This is general information, not advice about what to invest in.

• How to track your share portfolio in Australia: The records to keep, a spreadsheet or a tracker, and the figures worth watching.
• Investing with more than one broker: HINs and custodians, moving shares between brokers, and one set of records at tax time.
• Capital gains tax on shares in Australia: When you pay tax on selling shares or ETFs, how the gain is worked out, and what to do with a loss.
• How ETFs are taxed in Australia: Distributions, the annual tax statement, cost base changes, and selling units.
• All guides, and help with using Portfoli.au.
• Capital gains calculator: work out the gain on one sale, free.
• Dividend calculator: estimate dividend income with franking credits, free.