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Hi
Question for all the smart people out there...if one is using a dollar cost averaging to invest money and wants to compare against a benchmark (S&P, TSX etc.) how should one go about doing it? I typically buy and sell quite a few stocks in a year about 30 trades per year, so wanted to know what approaches other people may be using....
 

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I find the easiest way to track your rate of return when you are continuously adding money and removing it, is to simply run your portfolio like a mutual fund.

For example
If you have $112,236.15, you would start with a fund unit value of $10, for example. You would buy 11,223.615 units and all of them would be worth $10.00. If your portfolio drops to $110,000, your spreadsheet divides it by the 11,223.615 units you have and your unit value would become $9.8008. If you started the year with a unit value of $10.0000 and it is now $9.8008, you know your return was -2.0%. This can be calculated right along side.

Now the above is simple, and can be done any number of ways. But it is when you add or remove money, where the mutual fund method works very well. Lets say you now want to add $1,000. You would buy 102.0325 units at $9.8008. Your total is now 11,325.6475 units @ $9.8008, which is worth $1,000 more than the $110,000 you had before you added the $1,000. If the portfolio now rises to $113,000 you divide it by 11,325.6475 units you have and your unit price now equals $9.9774. When compared to the original $10 your are now only down 0.23%.

All this is done with an excel spreadsheet and all you need to do is remember to buy or sell units at that days price everytime you add or withdraw money.

It works for me and for about 10,000 mutual funds. If you now want to compare your performance to a benchmark, simply compare the unit value performance to any benchmark you like.
 

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Hi
Question for all the smart people out there...if one is using a dollar cost averaging to invest money and wants to compare against a benchmark (S&P, TSX etc.) how should one go about doing it?
Internal rate of return can be used to track this type of thing, because you can treat every addition to your portfolio as a separate cash flow. IRR basically tells you the percentage equal to the interest rate (e.g., on a bank account) that would have given you the same total return on your investment. IRR can take into account things like changes in share price, interest, dividends, capital gains, etc., but it will be cumbersome to compute manually.

To save you the tedium of having to compute it yourself, get a program like Quicken, which can do it for you.

K.
 
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