PeaksBlogInvestHow are your returns calculated in the Peaks app?


    How are your returns calculated in the Peaks app?

    12 May, 2023 - by Rosanne

    8 min

    When you start investing, you naturally want to make a profit in the long run. In the app, you can see at any time how your investments are doing and how high your profits are. But how are your returns calculated in the Peaks app?

    On your returns screen

    In the app, we show three returns: 

    1. The total return you have made on your average deposit since you started at Peaks
    2. The average return on your deposit (the total return converted to an annual basis)
    3. The return you made this year 

    Because these three returns can be confusing, we'd like to explain how we calculate your return. We do this using two examples: a customer who has been investing with Peaks for six years, and a customer who has been doing so for two years. 

    But first we'll clear up a possible misunderstanding. Because the way you might be used to calculating returns doesn't quite work with Peaks.

    If only it was that easy

    Unfortunately, to calculate your return with Peaks, this calculation isn't sufficient. It would only be applicable if you deposited €3,900 all at once at the beginning of the year. However, at Peaks, this is not how it usually works. You likely contribute throughout the year, such as a fixed amount every month, rounding up your change, and occasionally receiving a financial windfall (like your vacation money). Each deposit you make follows its own development. So, if you want to know what your return is over a specific period, you shouldn't calculate it with your total deposits but with your average deposit.

    Examples to clarify

    Let's say you invest €1,000 at the beginning of the year, and on the very last day of the year, you invest another €1,000. Assume you've made a profit of €50. What is your return?

    You've earned that €50 with the initial €1,000, resulting in a 5% return. If you were to include the second €1,000 in your calculation, you would end up with a return of only 2.5%. And that doesn't accurately reflect your return over the past year.

    In short, you need to consider the 'time' factor in your calculation to arrive at a return percentage that reflects the value development of your investments. One solution is to weigh your deposits. The first €1,000 counts as a full year (365 out of 365 days), and the second €1,000 counts as 0 out of 365 days. If you then divide your €50 profit by the weighted deposits (€1,000 x 365/365 + €1,000 x 0/365) = €50 / €1,000 = 5%.

    Once you understand this example, it becomes much easier to grasp the return in the Peaks app. Two more examples to clarify:

    Scenario 1: Someone has been a customer at Peaks for 6 years and has over 40% return

    Imagine you started investing with Peaks in early 2018 and invested €1,000 each year in the Adventurous portfolio (the riskiest portfolio). By the beginning of 2023, you would have contributed a total of €6,000.

    The balance in the Peaks app by the end of September 2023 is €7,461. Over this entire period, you've made a profit of €1,461 (€7,461 - €6,000 = €1,461).

    Deposit date Deposit Return Portfolio value end of year
    January 1, 2018 €1.000 -3,80% €962
    January 1, 2019 €1.000 26,00% €2.472
    January 1, 2020 €1.000 8,10% €3.753
    January 1, 2021 €1.000 26,60% €6.018
    January 1, 2022 €1.000 -18,30% €5.734
    January 1, 2023 € 1.000 10,80% €7.461**

    Return after deducting Peaks fees, index fund costs, and market spreads.
    ** Value at the end of September 2023.

    The return displayed by the Peaks app is 43.9%. This can be confusing because €1,461 compared to €7,800 is not 43.9%, right?

    Let's follow the previous explanation where we calculate the return concerning your average deposit. To keep the example simple, we assume that the value of €7,461 represents your portfolio value at the end of this year, allowing us to work with whole years. You can calculate the average deposit as follows:

    Year Deposit Weight deposit Weighted deposit
    Year 1 €1.000 6/6 year €1.000
    Year 2 €1.000 5/6 year €833
    Year 3 €1.000 4/6 year €667
    Year 4 €1.000 3/6 year €500
    Year 5 €1.000 2/6 year €333
    Year 6 €1.000 1/6 year €167
    Average deposit over this period €3.500

    The average deposit over the period of 6 years is €3,500. If we now divide the profit of €1,651 by the average deposit, the return is: €1,461 / €3,500 = 41.7%.

    As you can see, the return concerning the average deposit is much higher. It provides a better representation of the return you've had as an investor over this period.

    Scenario 2: Someone has been a customer at Peaks for two years and has less than 1% return

    Suppose you began investing with Peaks in early 2022 and invested €1,000 in the Adventurous portfolio. At the start of 2023, you did the same. In this case, you started just before the outbreak of the war in Ukraine, causing a significant drop in stock prices. You experienced a significant loss in the first year.

    This year (2023), the stock market has recovered, and you benefit because you added an extra €1,000 at the beginning of the year. As a result, you eventually break even and make a profit of €13 (€2,013 - €2,000).

    Deposit date Deposit Return Portfolio value end of year
    January 1, 2022 €1.000 -18,30% €817
    January 2, 2023 €1.000 10,80% €2.013

    What is your return over this period now? Once again, we need to consider your average deposit over this period. It amounts to €1,500 (see the table below). When we divide €13 by €1,500, you arrive at a return of 0.88% over your average deposit during this period.

    Year Deposit Weight deposit Weighted deposit
    Year 1 €1.000 2/2 year €1.000
    Year 2 €1.000 1/2 year €500
    Average deposit over this period € 1.500

    The return that you see in the Peaks app

    We've used the two scenarios above to explain how to calculate the return on your investments when you contribute regularly.

    The return displayed in the Peaks app is based on a variation of this method and is even more precise. We take into account both the timing of your deposits and the return-on-return effect. This is called the 'Internal Rate of Return' method, also known as money-weighted return, or in simpler terms, the effective return.

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    Why does the return vary for everyone?

    Do you know other people who invest with Peaks, and do they achieve a completely different return than you? That's correct, because all of you deposited at different times. The timing of your deposits matters: the prices of stocks and bonds fluctuate, and this affects the price at which you purchase. So, it's entirely possible that other Peakers purchased investments at a different price than you did. As a result, everyone ends up in a different position after some time.

    Still have questions?

    If you want to know more about returns at Peaks, please contact our customer service. We're available on business days from 9:00 AM to 6:00 PM.

    Keep in mind that investing carries risks, and you could potentially lose (a portion of) your investment.


    About Rosanne, the author

    As soon as Rosanne mastered the alphabet, she read everything that she managed to get her hands on. And even though her smartphone absorbs a lot of her attention these days, she still finds the time to sit on her favourite corner of the couch and get tucked into her latest book. Now she writes for Peaks. Her mission? Making difficult topics as easy as possible, so that they become accessible to everyone.

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