One of my favourite tales of investment stupidity is the story of the Beardstown Ladies. This group of grannies from a tiny Illinois town became famous in the 1990s when their investment club reported annualized returns of more than 23% for a decade. These Buffetts in bonnets wrote five books about their stock-picking acumen, which sold hundreds of thousands of copies, and they toured the US, celebrated as folksy, common-sense geniuses. Then someone checked their numbers.

It turned out that when the ladies calculated their returns, they included new money they had added during the year. Their actual investment returns over the decade were 9.1% annually, compared with almost 15% for the S&P 500. If you happen to find a Beardstown Ladies guide in a used bookstore one day, grab it: they’re collectors’ items now.

As the year-end approaches, you’ll likely want to know how well your own portfolio has done during the last 12 months. If you didn’t add or withdraw any money during the year, calculating your return is easy. Let’s say your portfolio’s value was \$50,000 last December 31, and at the end of this year it has grown to \$60,000. You can figure out the rate of the return with this simple formula: (\$60,000 – \$50,000) / \$50,000 × 100 = 20%.

But as the Beardstown Ladies discovered — unfortunately, it was only after they appeared on Donahue — this formula doesn’t work if your account has experienced cash flows, either in or out. What if the above portfolio started the year at \$50,000 and you contributed another \$500 on the 15th of each month? Your balance has increased by \$10,000, but \$6,000 was new money and only \$4,000 came from investment growth. Now what is your rate of return for the year? Not so simple anymore.

### You don’t have to do the math

Most annual statements from brokerages, mutual fund companies, and financial advisors do not include your personal rate of return, also called the internal rate of return, or the dollar-weighted return. So you’re probably on your own when it comes to figuring it out.

There are several formulas for calculating a portfolio’s return when money has moved in and out during the year. Most use that squiggly line that looks like a sideways W, and I’m pretty sure one of them includes the emblem of the Green Lantern. You are welcome to use these.

Fortunately for people like me, Weigh House Investor Services in Toronto created this handy online calculator that will do the math for you. All you need to do is enter the value of your portfolio at the start of the year, the value at the end of the year, and the dates and amounts of any contributions or withdrawals.

I used the calculator to figure out the rate of return in my own RRSP, taking into account three lump-sum contributions I made during the year. (My ETF retirement portfolio is 30% bonds and 70% equities, spread across Canada, the US, and international developed and emerging markets.) How did I do? Just over 10% for the year. That means I accomplished my investment goal: beating the 10-year performance of the Beardstown Ladies.