The fund went up 8%. Why didn't I make money?
A fund can rise 8% over two years while an investor loses money. A simple example explains how the timing and size of deposits can produce that result.
In the example below, both are true. Reconciling them needs one idea: the fund went up and down on a timeline, and you were only partly inside it. During the rising year you had a little in. During the falling year you had almost everything. So the same percentages did something to the fund and something else to your money.
A fund that rises, then falls
Use a hypothetical example with all monetary amounts in Chinese yuan. No dividends, no charges on buying or selling. Year one the fund climbs 20%. Year two it slips 10%.
One yuan of NAV travels 1.00 → 1.20 → 1.08. The two-year cumulative return is 8%. Invest 10,000 on day one and hold, and you finish with 10,800. Clean, and it matches the headline.
Now consider a different funding pattern: invest 10,000 at the start of year one and add 90,000 at the start of year two.
| What happened | Account balance |
|---|---|
| Invest 10,000 at the start of year one | 10,000 |
| Fund rises 20% | 12,000 |
| Add 90,000 at the start of year two | 102,000 |
| Fund falls 10% | 91,800 |
Total invested: 100,000. Ending balance: 91,800. You're down 8,200.
The arithmetic makes it obvious. Year one's rise earned you 2,000. Year two's fall cost you 10,200, because the 10% came off a pile of 102,000, not off 12,000. Same fund, same two moves, a different amount of money riding along. The larger investment was exposed to the second year’s decline.
New money shows up for ordinary reasons: a salary, savings you'd been holding back, proceeds from selling something else. None of that is a mistake in itself. The first step is simply to write down the deposits as they actually happened, and only then judge your own decisions against that record.
Two numbers, two different questions
The fund's 8% answers one question: how did this fund's value change across the whole stretch, whoever holds it? You link the growth factors, 1.2 × 0.9 − 1 = 8%, and that's the time-weighted view. It's the honest yardstick for judging the fund itself.
Your question is different. Each chunk of your money sat invested for a different length of time, so you want a return that accounts for how long every chunk actually stayed in. That's the money-weighted view.
Here, the first 10,000 rode for two years and the 90,000 for one. Find the single annual rate that grows each chunk for its own holding period and lands the account exactly at 91,800. You get roughly −7.51% per year.
Put the periods on the same clock and compare. The fund returned 8% over two years, which annualizes to about 3.92%. Your money-weighted rate: −7.51%. Same fund, same path. The entire gap comes from when your money entered and how much of it entered then. Both formulas, worked out, are in Fund net asset value and personal investment returns.
Where dividends and fees actually land
A cash dividend moves value out of the fund and into your hands, and the NAV after the payout reflects it. So when judging the fund, use total-return figures that treat dividends as reinvested. When judging your account, book the dividend wherever it actually went.
Left in the account, it's part of your ending balance. Swept to your bank account, it counts as a withdrawal from the investment account. Reinvested, it comes back as extra units and shows up in your ending holdings. Same event, three different ledgers.
Fees work in two layers. Management and custody charges accrued within the fund are reflected in its NAV. Subscription and redemption fees and any account service charges sit outside the NAV, on top, and come out of your actual cash flow. Keep the two layers apart and your personal tally will finally match your trade records.
Comparing funds starts with the same yardstick
Before ranking two funds, align what you're comparing: start and end dates, the scope each one covers, and how each handles dividends and fees. A sector fund and a broad-market fund hold different assets and will weather different swings. Indexes come in different cuts for the same reason. A price index only tracks the share prices. A total-return index also reinvests the dividends. If the fund's quoted return includes dividends, measure it against the total-return benchmark.
A fund tracks an index through actual investments. Fees, holdings and trade execution affect how closely its return matches the index. Study the index's long run first, then the actual product you bought and what it charges.
Recomputing your own account
Build a list in date order: starting balance, every deposit, every withdrawal, ending cash, ending holdings value. First, the plain arithmetic:
Gain = ending balance + withdrawals − starting balance − contributions.
That covers the whole account, cash and units together. Then compute your money-weighted return, and lay the fund's own total return beside it. This helps separate the effects of asset performance, cash-flow timing and additional charges.
To see how fees accumulate year by year, and what inflation does to the rest, keep going at What remains after compounding, fees and inflation. The complete reading path is in From investment returns to actual gains.