Is "Growth of $10,000" graph being calculated correctly in Quicken Premier ?
I have a concern regarding the calculation of the "Growth of $10,000" plot in the "Performance" tab of "Investments". In particular, my question is: how is this calculated when money is regularly transferred into the investment account (dollar cost averaging)?
According to what I've read elsewhere, calculating this correctly involves finding the return for the holding period that begins after the previous deposit was made and ends with the current deposit.
For example, stipulate that the value of the investment is $1,500 after the initial deposit. Let this be the starting point for calculating the growth of $10,000.
One month later, a deposit of $1,000 is made and the total value is then $2,650. To find the growth of $10,000, the holding period return (HPR) needs to be calculated which is
HPR_1 = ($2,650 - $1,000) / $1,500 - 1 = 10%
It follows (I think) that, after this month, the "Growth of $10,000" chart should give a value of
$10,000 * (1 + HPR_1) = $11,000
Quicken does in fact report this after the first deposit. Now, a month later, a deposit of $1,000 is made and the total value is then $3,782.50. The HPR for the second month is
HPR_2 = ($3,782.50 - $1,000) / $2,650 - 1= 5%
and (I think) the "Growth of $10,000" chart should give a value of
$10,000 * (1 + HPR_1) * (1 + HPR_2) = $11,550
Similarly for 3rd (4th, etc.) month's deposits. That is, after N deposits, the "Growth of $10,000" plot should give a value of
$10,000 * (1 + HPR_1) * (1 + HPR_2) * ... * (1 + HPR_N-1) * (1 + HPR_N)
However, the Quicken "Growth of $10,000" doesn't agree with this. Evidently, Quicken calculates this like so
$10,000 * (Value after N deposits - Cumulative Net Additions) / Initial Value
For example, Quicken would calculate the "Growth of $10,000" after two months as
$10,000 * ($3782.50 - $2,000) / $1,500 = $11,883.33
For verification, I've included a screenshot of the Quicken report showing that this is the case. I've also included a screenshot of the the account register.
This may not seem like much of a difference but throw in a month with a steep drop followed by a month with a recovery, and the departure from the HPR method becomes extreme. I've included a screenshot of a spreadsheet that compares the results of the HPR method to the method that I believe Quicken uses.