The Lemon Fool

I have an investment tracker on Excel which lists the holding, date bought, quantity of units and price paid; today's date and price and from this I can calculate XIRR.

However, I have some income units and whilst total return is the same as for accumulation units, the share price lags behind acc units. I am not able to automatically reinvest the dividends on my platform (a misstep on my part, I am swapping out to accumulation units bit by bit) but I would like to include the dividends received in my XIRR calculations.

So what I have done is to divide the dividends received by the quantity of units held and add the result to today's share price so as to calculate a more meaningful XIRR. I know that this does not take account for the compounding effect but the intention is to be "closer" to the true return even if I cannot be exact.

Would our more numerate members agree that this is a valid exercise or is it not?

The distributions from the income units are part of your cash flow. In that way they contribute to the total return on those units. What you do not get is any future income or capital gain from the dividends which you do not reinvest.

If you want to synthesise a portfolio where the reinvestment had been done, then divide the dividend by the share price on payment day and add those units to the total.

As far as XIRR is concerned, it uses your cash flow. With accumulation units, the dividends can be ignored, so you just have cash inputs and the current valuation as the elements of the calculation, so all you have to do is to calculate the number of extra units which would have been bought, so you have a comparable current valuation. The dividends stay in the portfolio so are not counted.

Don't forget that a falling share price may lead to a lower rate of return from the accumulation units, because you have not had the benefit of the dividends paid out from the income units.

TJH