An investment account rises from 10,000 to 11,000. At first glance, that looks like a 10 percent gain. But if you contributed 2,000 during the period, the account's growth does not mean the investments performed well.
Balance growth and investment return are different questions. Contributions must be separated before either can be understood properly.
Identify money added and removed
In the example, the opening balance is 10,000 and contributions are 2,000. With no withdrawals and a closing balance of 11,000, the residual change is negative 1,000 before any further classification.
That residual may reflect market movements, fees, income treatment or currency effects. It is not enough information to calculate a precise percentage return without considering the timing and method.
Calling the result a 10 percent gain would confuse new money with performance. Calling the residual a precise return percentage without a defined calculation would create a different error.
Keep external contributions distinct from internal activity
Moving money from your bank account into the investment account is a contribution to that account, but an internal transfer within your overall finances.
Reinvesting a dividend is different again. The dividend may be investment income that is used to buy more units, not fresh money contributed from outside the portfolio.
Sales, purchases and transfers between investment accounts need the same boundary discipline. A sale inside the portfolio is not automatically a withdrawal from the household's investments.
Preserve the dates and original currencies
The timing of contributions and withdrawals matters when evaluating performance. Money added near the end of a period did not experience the same market exposure as money invested throughout it.
For foreign-currency holdings, distinguish the investment's local-currency movement from the reporting-currency effect. A flat local value can still rise or fall when expressed in another currency.
Keep quantities, transaction dates, cash movements and valuation dates traceable. A performance figure built on incomplete records can look precise while remaining unreliable.
Use the right question for the decision
For household planning, you may first need to know how much you contributed and what the account is now worth. For investment evaluation, you may need a defined return methodology and a suitable comparison.
ASIC MoneySmart's investment-planning guidance encourages matching investments to goals and understanding their role in the wider plan. That broader decision should not rest on an account-balance change mistaken for performance. ASIC MoneySmart
This article explains recordkeeping, not which investments to buy, sell or hold. Use qualified advice where your circumstances call for it.
A useful monthly explanation might say that contributions added 2,000 while the remaining changes reduced value by 1,000. That is less flattering than a headline gain, but much more informative.