Does it sometimes feel like you’ve earned less on your investment than the figures quoted by the insurer or the investment company? Chances are good that – from your viewpoint and using the calculation methodology that you’re familiar with – you did actually earn a different rate from the published return.

Are the investment companies cheating? No. In more mature industries (like ours) performance reporting is standardised and well audited. But in order to publish standardised figures, they can’t reflect the idiosyncrasies due to the fact that investors:

• time their contributions and withdrawals diffrently;
• negotiate different types of intermediary fees with their planners.

When they publish a 5-year return, for example, they’re assuming you invested a lump sum on the first day of the period they’re measuring, that you remained fully invested over the five years, and that you didn’t sign a debit order or added to your investment on an ad hoc basis. Also, they look at the incoming investment money from their viewpoint. In other words, if you invested R100 000, of which R2 000 was commission, you’ve only invested R98 000 on their books.

More relevant to you, and also the more accurate measure – catering for every investor’s unique scenario – is the actual annualised return a.k.a. the internal rate of return (IRR) on your cash flows. This methodology looks at all your cashflows and then determines what annualised effective interest rate a zero-cost bank account had to pay on your contributions to leave you with the same investment balance as the insurer or investment company’s pay-out at the end of your investment term.

Want to calculate the IRR on your investment but don’t know how? Don’t worry, our What Did I Actually Earn? calculator will do it for you.