Reporting
An adviser runs one household through two systems and gets two answers. Neither is wrong. Here is exactly where the difference comes from, to the decimal.
An adviser runs the same household through two systems and gets two answers. Ours said the household had returned 72.9% since inception. The other system said 74.07%. Same accounts, same custody, same period, and a gap of 1.17 percentage points.
Nobody is wrong. Here is the whole of it, because the useful thing is not which number you prefer — it is being able to say exactly where a difference comes from.
Ending market value, net contributions, management fees and income reconciled to the dollar. Every account-level since-inception return matched as well. We display one decimal place; the underlying figures agree beyond it.
| Account | Ours | Other system |
|---|---|---|
| Rollover IRA — A | 7.2% | 7.22% |
| Rollover IRA — B | 10.9% | 10.93% |
| Roth — A | 6.8% | 6.84% |
| Roth — B | 2.8% | 2.81% |
So no account is being measured differently. The entire difference lives in one place: how four account returns become a single household number.
Asset-weighted composite. Each period, weight every account's return by its beginning-of-period market value, then chain the periods geometrically. This is the approach set out in the global performance standards for combining portfolios into a composite. It is what we use.
Daily dollar-weighted. Treat the whole household as one portfolio, revalue it daily, and weight every cash flow from the exact day it lands. A true daily time-weighted return at the aggregate level.
Both are standard. Both are defensible. When accounts move together and flows are small they land in the same place, and most of the time you will never notice which one your provider uses.
They diverge when a large flow with an off-market return arrives mid-period. Year by year:
| Year | Ours | Other system | Gap |
|---|---|---|---|
| Year 1 (partial) | +32.4% | +32.39% | +0.01 |
| Year 2 | +18.7% | +18.65% | +0.05 |
| Year 3 | −20.6% | −20.00% | −0.60 |
| Year 4 | +10.8% | +10.87% | −0.07 |
| Year 5 | +6.8% | +6.56% | +0.24 |
| Year 6 | +5.8% | +5.84% | −0.04 |
| Year 7 (partial) | +10.6% | +10.74% | −0.14 |
| Compounded | 72.9% | 74.07% | −1.17 |
Six of the seven years agree inside a quarter of a point — within display rounding. One year differs by six tenths, and because returns compound, that single year carries the whole cumulative gap. Replace that year alone and the two cumulative figures reconcile.
One account was funded with a large deposit near the end of June. The money sat in cash and earned close to nothing for the remainder of the year. That year was a down year, driven by the equity accounts.
So the question is narrow and specific: how much should a flat cash sleeve, arriving in the middle of a losing year, soften the household's loss?
Daily dollar-weighted lets that cash participate only from the day it arrived, at roughly zero — pulling the household's year toward zero, so slightly less negative.
Asset-weighted composite weights each account's return by its value at the start of each sub-period, which weights that same cash differently and leaves the year slightly more negative.
Neither treatment is wrong. They are two accepted answers to one genuinely ambiguous question, and on a year of that size a six-tenths spread is a structural property of the methods, surfaced by the timing of a deposit. It is not a defect in either report.
A provider who cannot explain a difference will usually tell you the other report is wrong. That is the answer you get when nobody has reconciled anything.
The work that matters is the reconciliation: agree the accounts to the dollar first, isolate the roll-up, then find the single period that carries the gap and say what happened in it. Our figure came out lower here. That is not a problem to be managed — it is the point of doing the exercise.
Which roll-up method do you use? Asset-weighted composite, or daily dollar-weighted at the household. Either answer is fine. No answer is not.
Do the account-level returns reconcile to the custodian? If the accounts do not agree, the household number cannot be argued about yet.
Can you show me the year that carries a difference? Any competent provider can isolate it. The ones who cannot are not calculating — they are reporting whatever the system printed.
Figures shown are from a single household reconciliation and are provided to illustrate methodology. They are not a performance record, are not representative of any adviser's results, and are not indicative of future results.
Questions this did not answer? Ask them directly — that is what the twenty minutes is for.
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