I use Microsoft Money to manage my portfolio. I find it very useful to enter and keep track of all the various transactions that occur in a dividend investing portfolio. Through the years I have relied upon the software program to calculate the various returns my portfolio has achieved. However, when I recently upgraded to Microsoft Money Plus Deluxe I saw something strange happen - both my annualized return and year-to-date numbers changed. Upon some further investigation I have found that there have been various issues through the years with the way Money calculates returns. This did not leave a warm fuzzy feeling in my gut! An investor needs to know exactly how they are doing compared to the market to effectively judge how their strategy is performing.

My lost confidence in the program’s ability to calculate returns has lead me to take things into my own hands and set up a spreadsheet to help me track my portfolio’s annualized return using Excel. This way I will know have two systems going to gauge my returns, and frankly I will trust my own system more because I will know exactly what it is calculating and where the numbers are coming from. Even after a few hours of research I still cannot figure out how Money does its calculations.

Here is a similar version of the spreadsheet I set up to calculate my return. It is published via Google Docs and this is the first time I have used it so I hope it works for you…

A couple of things to point out:
1. The formula for calculating the return is xirr(C6:C9,D6:D9), where C6:C9 equals the values and D6:D9 equals the dates.
2. You do not enter portfolio transactions such as dividends earned or interest on cash. These transactions are part of the current value. Only enter transactions where you personally deposit or withdrawal money from your portfolio.
3. Current Portfolio Value is entered as a negative number - the spreadsheet assumes that on the current date you liquidate your portfolio.

The best way to learn about this process is to play with it yourself. By calculating your own return you will know exactly how your portfolio is performing, which can provide a great deal of value to the individual investor.

Welcome to the November 15, 2008 edition of The Dividend Guy’s weekly roundup of posts and articles about investing, dividend and non-dividend related. Once again a good week in terms of posts and information for all of us avid blog readers.

The DIV-Net

How to find CEO pay info

Diversification not working

Dividend ETFs

Panic selling is stupid

The perfect dividend stock

Successful depression-era investor

Profit from special situations

Value in dividends

How to get rich

DIY Investing

The Articles

This is really funny - unless you own the stock!

A buy and hold dividend stock portfolio

The role of dividends in stock returns

Are Canadian banks good investments?

Is GE’s dividend at risk?

7 rules of wealth building

9 dividend stocks at risk

Is now the time to buy?

Emergency funds are always a good idea

Strategies for the shaky investor

Lots of GE dividend talk this week

How to survive the current market

The outlook for Canadian banks

Importance of asset allocation

Stocks for the long run

Not necessarily good dividend investments

Should you follow Buffet

Ready Set Invest

Bill Gates is a dividend investor

Advice from young investors

TELUS increases dividend

Dividend slashers and divided growers

Building your wealth network

Canadians are getting less ripped off from mutual funds

Running out of money

Early Retirement bought some GE

So did Everyday Finance

Interesting analysis of investing in bank stocks amid the crisis - my take: a dividend cut is still a dividend cut

Thanks for reading!

I find the recent market action very interesting, especially the headlines in the newspapers and the chatter I hear on elevators, during lunch, or before the start of meetings. The main topic of course is the recent market action and the intense volatility this is having on personal portfolios. There is a lot of stress about it across the board, from young to old and wealth accumulators to close to retirement. The problems are global - I am holding these conversations in Norway and during video conference calls with my colleagues in North America, UK, and Malaysia.

During these conversations, I have come to some unscientific conclusions of three things that investors do to get themselves into trouble. They are really simple things, however if every investor took some basic action to ensure they did not become a problem in their portfolios then market action like we have recently seen would not be as much of an issue as it is. Here is what I think are the three basic problems as identified during my “research”:

First, investors do not act long term

Overall, it appears that most investors may think they are long term investors. However, their actions indicate that they are really short-term investors. There is no patience to wait for markets like this to pass and rash decisions are made, selling stocks during the panic. Investing is not a 2-week game. It is a 10+ year game and markets are going to go up and down no matter what our governments do.

Second, investors hold portfolios that are not diversified

It appears that many investors I talked with do not hold diversified portfolios. There is way too much in equities and the equities that they hold are very concentrated in one region (North America) and in only a small number of holdings. If only most investors had good diversification across various asset classes, various regions around the world, various market caps, and across both value and growth then the dives in the markets would be buffered. Not all asset classes are going to drop 25% like an all equity portfolio would have done.

Third, investors hold too much in a company plan

The third and last observation I have made is that folks with awesome company sponsored investment plans (my company included) do not proactively manage these holdings and they let them become way too large as a percentage of their portfolio. It is easy to do - these programs are often on auto-pilot and the investments just happen automatically and before you know it 20 - 30% (or more) of your portfolio is concentrated in one stock. If the stock is going up then all is good - but if it is going down then the results are drastic. The solution is simple - limit any stock holding in a portfolio to no more than 5%. This may mean selling shares in your company from time to time but it is a small price to pay for some added diversification. Invest the funds in other asset classes (regions, market cap, fixed income) and spread it around. Ultimately you are managing risk.

I think that if investors just did these three things right then times like these would be much easier to bear. They are not rocket science nor are they hard to do. It does take some effort and time, but ultimately your retirement depends on it.

Welcome to the November 8, 2008 edition of The Dividend Guy’s weekly roundup of posts and articles about investing, dividend and non-dividend related. Once again a good week in terms of posts and information for all of us avid blog readers.

The DIV-Net

The Russell stock indexes

Dividends STILL a critical component of stock return

Best and worst performing dividend stocks

Panic selling is silly

How is your portfolio performing?

The Div Guy’s dividend income update

Johnson & Johnson’s dividend growth

He has a dream - a dividend dream

The Articles

Some cool dividend stuff from the archives

Lots of people sell their mutual funds - should you?

Procter & Gamble is not such a gamble

Wal-Mart versus Target

How to become a millionaire

Why its time to buy stocks

A bloggers net worth update

Dollar cost averaging works during a down or sideways market

Dividends are crucial

Thanks for reading!

Whenever the stock markets go through a very rough period, it is inevitable that there is talk that this time things are different. I remember the tech bubble in the late-90’s when the “new economy” was going to change everything and the stock market was now playing with new and different rules. Valuations were irrelevant, as was company revenue and earnings. As long as the company was in the online space it was going to rule the world. Look what happened then! And here we are again with stock market pundits speaking of the changes that we are seeing in the markets and saying that this time, everything has changed. Credit and banking will never be the same again. Will it?

There has been something that I personally have been looking for for a long time. It is a representation of how the media plays things up and pontificates gloom and doom for the sake of magazine and/or newspaper sales. I have finally found it and it was prepared by O’Shaughnessy Asset Management, LLC. In this pdf file, they present a multitude of different magazine and media headlines during the different market cycles we have gone through. Without fail, the magazines present the various economic events as dire and dreadful. Sure, at the time they are. This credit and banking crisis we are currently going through is hard on everyone. However, this too shall pass and we will look back on it as just another blip in the stock market.

Here are a couple of examples of various magazine covers during a couple periods of financial turmoil:

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Finally, the last image that O’Shaughnessy portrays is a chart of the S&P 500 and it’s rolling 12-Month returns. It is clear that the market does indeed have its ups and downs. This time will be no different in my opinion. The question we dividend investors must ask is, how patient and disciplined will I be during these tough times to continue investing based on my dividend strategy and my chosen asset allocation?

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