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Portfolio basics
Portfolio value vs profit
By VestRadar · Updated
A larger portfolio balance does not automatically mean your investments made money. Deposits increase your balance too. Separating the two helps you understand what actually changed.
Portfolio value is the current worth of your holdings and cash. Profit measures the change after accounting for money you added or took out.
A simple example
Suppose you track a portfolio in US dollars. There are no withdrawals, currency conversions or transfers of securities during the period.
| Item | Amount |
|---|---|
| Starting portfolio value | $10,000 |
| Money deposited | $2,000 |
| Ending portfolio value | $12,500 |
Your balance increased by $2,500. Of that increase, $2,000 came from your own deposit. The remaining $500 is the investment gain, including any income and costs already reflected in the ending value.
$12,500 − $10,000 − $2,000 = $500 profit
Separate cash movements from investment results
A deposit brings money into the portfolio; a withdrawal takes money out. Neither is an investment gain or loss by itself. When all contributions and withdrawals are cash, the calculation is:
Profit = ending value − starting value − deposits + withdrawals
Selling a holding is different from withdrawing money. If the sale proceeds stay inside the portfolio as cash, they remain part of its value. Profit can also include changes in the value of investments you still hold.
Why this is not a 25% return
The balance grew by 25%, but that includes the deposit. It describes the increase in portfolio size, not the return earned by the investments.
A meaningful return percentage also needs the timing of cash movements. Money deposited on the first day had longer to participate in gains or losses than money deposited on the last day.
Time-weighted returns separate investment performance from external cash flows. Money-weighted returns reflect the size and timing of those flows. Before comparing two return figures, check their dates, currency, calculation method and treatment of fees.
For more on cash flows and return calculations, see the CFA Institute GIPS Standards Handbook.