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Part of How Sharesight calculates your returns — the universal calculation reference for your portfolio, holdings, and reports.

Sharesight annualises returns by weighting the length of time that each capital input has been invested, by the amount of capital invested, to determine the average years invested (AYI) for each dollar of capital. Example 1 below illustrates this calculation.

For a detailed explanation of simple vs compound return calculations, see Simple and compound calculation.

How is AYI calculated?

AYI is calculated by weighting each capital contribution by how long it has been invested, then dividing by total capital invested. A large recent inflow can significantly drag the AYI down — even if older capital has been held for years.

Example: A portfolio has two cash flows:

• $100,000 invested 5 years ago
• $500,000 invested last month (approximately 1/12 of a year)

Because the $500,000 — over 80% of the total capital — has only been invested for one month, it dominates the weighted calculation and pulls the portfolio AYI well below 1 year. As time passes without further large inflows, the AYI gradually rises back above 1 year.

Why does my return sometimes show % p.a. and sometimes not?

Sharesight calculates your return using the Modified Dietz method, a money-weighted approach that accounts for the timing of your cash flows — so when you invested your money affects the result.

Returns are displayed differently depending on AYI:

• AYI of 1 year or more — the return is annualised and shown as a % p.a. (per annum) figure, making it easier to compare performance across different time periods.
• AYI under 1 year — the return is shown as a holding period return (no p.a.), reflecting the actual return earned over the period without projecting it to a full year.

Annualising a return that's less than a year old can be misleading — a strong month doesn't necessarily mean that rate will continue for the rest of the year. Sharesight shows the actual return earned for the period instead.

Avoiding extrapolation of short term volatility

Annualising short-term returns can produce extreme figures. For example, a 5% price gain on the first day of ownership annualises to 1,825% — not a meaningful number.

This effect is amplified when a large capital inflow occurs shortly before a significant gain or loss. Even if the total investment period spans more than a year, a small AYI caused by a recent large inflow can produce an outsized percentage return.

To address this, Sharesight applies an alternative approach when extrapolation is detected: the dollar gain is divided by total capital contributed instead. This is only used when it produces a more conservative result — meaning it only applies when AYI is less than 1 year.

In the example above, the AYI is only 0.23 years as most capital was invested for just one month. Using the standard money-weighted method this produces a ~600% gain — which overstates the result. The alternative method shows it more reasonably as a gain of $8,300 on $6,000 of total capital invested.