How to compare returns

Name: findependent
Brand: findependent
Rating: 4.9 (94 reviews)

What you should look out for when comparing your different investments and their returns

Sometimes you have more than one form of investment, for example a pillar 3a, two different investment apps for unrestricted pension provision and fund investments with a bank. In this article, we explain what you should keep in mind when comparing the returns of the different forms of investment.

Time window

It was particularly noticeable in 2024: the returns were not spread evenly throughout the year, but mainly in the first half of the year. This means that anyone who only made an investment during the summer was unable to benefit from the strong first six months.

Strong first half-year

The findependent investment solution “Balanced” achieved a total return of 13% in 2024, after deduction of all costs. 10% was generated in the first half of the year and 3% in the second half.

Don’t: Don’t compare an investment that you started on 1 January or in the previous year with an investment started during the year.

Do: Instead, look at the return for the entire calendar year for your investment made during the year. Or shorten the time window for the existing investment to the same length as your new investment.

Investment amount

This aspect is relevant if you are not observing a percentage change (specifically the time-weighted return TWR) for the return comparison, but the actual monetary change. The higher your original investment amount, the higher the return in Swiss francs (positive or negative).

Don’t: Do not use the monetary change for the comparison.

Do: Always use the time-weighted return TRW for return comparisons.

MWR / TWR

findependent calculates the return in the app as a time-weighted return (TWR). Although this type of calculation is considered standard in the financial sector, it can give you the feeling that return and profit do not match.

The reason for this is that all incoming and outgoing payments are ignored when calculating the TWR. This means that the return corresponds to the return that would have been achieved if the same amount had always been invested from the outset. This allows different investment solutions and strategies to be compared fairly.

The major disadvantage of this method of calculation is that the return does not correspond to the intuition (profit or loss divided by the total value of the investment solution) as soon as you have made more than just a single payment into your investment solution.

This is why findependent also shows the money-weighted return (MWR). This takes into account the personal payment dates, which means that the return often corresponds well with the actual profit or loss and is therefore easier to understand.

Deposits and withdrawals

You may have made deposits or withdrawals over the course of the year. These will affect your money-weighted return. For example, if you have made an additional deposit shortly before a sharp rise in the share price, this investment solution will show a higher money-weighted return than an investment solution to which you have not allocated any additional funds.

Don’t: Don’t compare money-weighted returns if you have a different deposit and withdrawal pattern with one investment solution than the other.

Do: Use time-weighted returns to measure and compare the actual performance of the investment.

Investment strategy

Different asset classes deliver returns at different levels. This was no different in 2024. While global equities gained 27%, bonds delivered 6% and properties almost 10%. Accordingly, mixed portfolios performed differently, depending on their weight in equities.

It’s true for 2024 and especially for the long term: the more equities in the portfolio, the higher the return (and the higher the fluctuations in value).

Don’t: Don’t compare a pure equity strategy with a mixed portfolio.

Do: Compare a mixed portfolio with, for example, 40% equities with an investment solution with approximately (+/- 5%) the same proportion of equities.

Currency

The Swiss franc is hugely important to us; we pay practically all our obligations in this country in our national currency. The situation is somewhat different in a global context, where the Swiss franc plays a rather subordinate role. Many global investments are calculated in US dollars. If you make such investments, there is an exchange rate risk. A return in a foreign currency must be adjusted for the change in the exchange rate in order to obtain a return in Swiss francs.

Don’t: Don’t: Do not directly compare returns on an investment in a foreign currency with returns on an investment in Swiss francs.

Do: Always adjust returns on an investment in a foreign currency for the change in the exchange rate against the Swiss franc in order to be able to compare with an investment in CHF.

Actual returns

You may rely on a generic information sheet for your fund investment to compare returns. The returns may not be listed in the same currency and not net (after deduction of all costs). The main currency of the fund may be euros, but your actual investment is denominated in Swiss francs.

If this is the case, the returns of these two currency tranches are not the same, and sometimes the returns are shown before costs are deducted. This is usually due to the fact that there are many different variants of the same “main investment” and each variant has a different cost structure.

Don’t: Don’t simply take the returns from a marketing document from your bank and compare them with the returns achieved with another investment solution.

Do: Always use actual returns. In other words, what was actually achieved in terms of asset growth, in Swiss francs and after deduction of all costs.

Conclusion

Comparing returns makes sense. After all, at the end of the day, it is only the net returns that count. Nevertheless, apples should not be compared with pears. The time of deposit and the chosen investment strategy play a decisive role, especially when looking at a rather short period of time, for example one year. It is therefore advisable to only compare identical time frames and risk profiles and always pay attention to the currency.

Returns and factsheets of findependent’s investment solutions