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Time Weighted Return + Cash Flow Transactions

kgpreet

I think I have discovered a bug in the way the time weighted return is calculated. I noticed that for one of my accounts the TWR was moving downward in step-wise fashion with each step roughly correlating to a cash deposit. I think this is happening because I have linked the cash deposits as transfers from the source account (e.g. source account shows -amount with category set to Transfer > Brokerage and the investment account shows +amount with category set to Transfer > source account). Is this is a bug relating to the cash flow transactions or do I have something else incorrectly configured?

Screenshot 2024-09-20 at 12-51-31 Simplifi - Investments.png

(each downward step above corresponds to a transfer from source → brokerage (roughly 2x a month)

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Investment Transactions

Comments

Coach Jon

Hello @kgpreet,

Thanks for reaching out! When viewing Investment Performance Over Time, TWR measures the compounded rate of return for your investments over time and does not take cash moving in and out of the account into consideration. IRR measures the return between two dates and does take cash moving in and out of the account into consideration. Performance values depend on the successful aggregation of your accounts and holdings, as well as the accuracy of your Investment Transactions. This information can be found in our great support article here: https://help.simplifimoney.com/en/articles/6542812-investing-performance-over-time

I hope this helps!

-Coach Jon

kgpreet

Hi @Coach Jon,

Thanks for linking the article, I have read through that already. I believe one of us is missing something. I understand the TWR should not be taking the movement of cash into account, but if you look at the screenshot it seems to be doing exactly that as it moves downward in lockstep with cash transfers.

Coach Jon

Hello @kgpreet,

Could you provide screenshots showing the correlation between the cash transfers and the TWR graph? You may feel free to message me directly if you wish.

Thanks,

Coach Jon

kgpreet

I'll DM you the screenshots right now, thank you!

Coach Jon

Hello @kgpreet,

Thanks, I can see the correlation. If you add a manual cash transaction does the Performance Over Time graph update accordingly to show that transaction? Does it drop again like shown in your screenshot?

Thanks,

Coach Jon

kgpreet

Yup! It drops just like the others.

Transaction

Before

After

kgpreet

If I change the type to "Income Misc." the effect goes away

UrsulaA

I believe the TWR in Simplifi that my accounts displays is incorrect.

Using the web app version 4.26.0 on Microsoft Edge on a Windows 11 Machine

Definitions in Simplifi

Time Weighted Return (TWR) Measures the compounded rate of return over time. It does not take into account the impact of cash moving in and out of an account.

Internal Rate of Return (IRR) Sometimes called Dollar Weighted Return, it measures the return between two dates. It takes into account the impact of cash moving in and out of an account.

Note that performance values depend on successful aggregation of your account(s) and on the accuracy of your transactions.

What I see

I have a brokerage account that only has money market funds investments that should show a minimal return, about 1%.

Instead the TWR is showing dips coinciding with the contributions I made in past months. For 2023, I contributed monthly and the TWR looks as follows:

Above are contributions and withdrawals from the account last year, which seem to be included in TWR. They should not.

UrsulaA

Also, the TWR is close to the balance change, which should not be the case given the definition above.

Coach Kristina

Hello @UrsulaA,

To confirm, are you seeing the same issue described in this discussion?

https://community.simplifimoney.com/discussion/10257/time-weighted-return-cash-flow-transactions

I look forward to your reply!

UrsulaA

https://community.simplifimoney.com/discussion/comment/41196#Comment_41196

Yes, same thing.

RockLee

I'm leery of the TWR calculation without some specific documentation. For Simplifi to make this calculation, and for IRR also, it must know what transactions constitute a transfer of funds in or out of the account. I suppose it could do this by only considering transaction with a category of type "Transfer", but in @UrsulaA screen shot it seems to be incorrectly including "transfer Schwab" transactions as investment gains/losses.

But worse it seems Simplifi is incorrectly including all "Payment/Deposits" as gains/losses, even when they are transfers of funds in and out of the account. The problem is that "Payment/Deposits" is also used for interest gains which is a gain/loss within the account (Additionally "Payment/Deposit" is necessary if a user wants to also track dividends in reporting). I don't see how Simplifi can make a distinction between gains/losses on assets in an account vs deposits/withdrawals.

UrsulaA

https://community.simplifimoney.com/discussion/comment/41207#Comment_41207

I agree with this assessment. My screenshots above show all the cash transactions that are truly cash deposits or withdrawals. I reverted to categorize income, both dividends and interest, using the categories for investments Income Dividend and Income Interest and forgone showing these in reports. For interest and dividends to show in reports, they need to be action = Payment/Deposit or Income Miscellaneous (this action cannot be made to display totals in reports or be included like the payment/deposit action, the transaction itself is viewable but dimmed as hidden). Also, when recategorizing interest and dividends as payment/deposit, duplicates come down on refresh of the recategorized interest and dividends and I do not want to deal with that anymore.

UrsulaA

Another odd item, the TWR calculation seems to count purchases and sales as well, distorting the calculation. Purchases and sales should not affect returns.

Chart showing spikes with buy transaction on August 28 and deposit on August 29

UrsulaA

Below is a link outlining a TWR calculation. Simplifi should fix the calculation to ensure the proper initial and ending values are accounted for.

Time-Weighted Return: What It Is and How To Calculate It | Bankrate

Coach Jon

Hello everyone,

I tried to recreate the issue today and found that I was not able to in my own product, both in the web application and mobile application. Can you please verify that the issue is still occurring for you guys and let us know? Be sure to try in different browsers and the mobile application so we can be sure.

Thanks,

Coach Jon

UrsulaA

I am on a Windows 10 machine on Microsoft Edge and the issue still exists for my connected Schwab accounts. Please look at the screenshots above.

I tried yesterday on a Windows 11 machine on Microsoft Edge and I see the same behavior with TWR. At this point, I disregard the performance tab as it is useless.

kgpreet

Hi @Coach Jon, I can confirm that I still see the issue using the following clients:

Web App on Firefox 130.0.1 on Ubuntu 22.04.5
Web App on Chrome 129.0.6668.58 on Ubuntu 22.04.5
Android App (v5.13.0) on a Google Pixel 6 Pro running Android 14

kgpreet

If it helps with anything my connected account is also a Schwab account.

UrsulaA

https://community.simplifimoney.com/discussion/comment/41247#Comment_41247

Both of my accounts are at Schwab and I checked my balance history for both accounts. Balances are correctly reflected in Simplifi.

Coach Jon

Thanks for the information, you guys. So, to clarify, do you both have Schwab accounts that this issue is appearing for? Does this issue appear for any other investment accounts you may have?

Let us know!

-Coach Jon

UrsulaA

I only have two connected investment accounts at Schwab @Coach Jon .

UrsulaA

This issue has appeared before, see discussion below.

Issues with Investments Performance tab — Simplifi (simplifimoney.com)

UrsulaA

Also, when I run the performance for periods with no cash contributions or purchases/sales, the time weighted return and the balance change match.

Balance change

TWR

Coach Jon

@UrsulaA,

It looks like @Coach Natalie was able to reproduce this issue herself. We are wondering if this is something new that just started happening, or if it could have been happening for a while and it has not been noticed. Have you and @kgpreet noticed this previously when using this feature?

Thanks,

Coach Jon

UrsulaA

https://community.simplifimoney.com/discussion/comment/41253#Comment_41253

I have noticed this issue recently but it is the first time I really pay attention to performance. Someone noticed this issue back last year, per my message above.

RockLee

@UrsulaA : "Also, when recategorizing interest and dividends as payment/deposit, duplicates come down on refresh of the recategorized interest and dividends and I do not want to deal with that anymore."

Yea, Unrelated to this thread, but I have this problem also, next time I'll take a screenshot and start another post about it.

UrsulaA

https://community.simplifimoney.com/discussion/comment/41271#Comment_41271

There is already a post about the duplicate transactions. Post your experience there.

https://community.simplifimoney.com/discussion/10262/investment-transaction-duplications-edited

Coach Jon

Hello everyone,

We have gone ahead and reported this issue. We will be sure to post any updates here on the status of this issue going forward.

Thanks for your patience!

-Coach Jon

SIMPL-23165

kgpreet

https://community.simplifimoney.com/discussion/comment/41251#Comment_41251

I do have another investment account linked, but none of them have had deposits in the time that I've been using Simplifi. Just for completeness I did try adding a manual cash transaction (+1000 Payment/Deposit on 9/16) on my Robinhood account and observed the same behavior.

Before

After

https://community.simplifimoney.com/discussion/comment/41255#Comment_41255

Similar to @UrsulaA I haven't taken a very serious look at performance before but I do generally remember seeing the weird stair step pattern when the feature first came out (that was part of the reason I didn't use this feature since it seemed to be showing incorrect data).