Your investment returns are made up of two parts: Annualized Cash Yield and Unrealized Return.
Together, they reflect both the income you’ve received and the income that’s still building up in your portfolio.
Annualized Cash Yield
This is the interest you’ve already been paid - the real cash that’s hit your account. It shows how much income your investments are generating on an annual basis, based on what you’ve actually received so far.
Unrealized Return
This is interest that has accrued on your investments but hasn’t been paid out yet. These returns are still on paper and may change depending on borrower payments or other factors.
Rate of Return
Your overall rate of return blends both realized and unrealized earnings and adjusts for when you added or withdrew money. At Groundfloor, we use the Modified Dietz method to calculate performance.
*Note: For the Flywheel Portfolio, total return is an estimate calculated using a 9% accrual rate that represents a target rate of return to investors, net of fees or future losses on individual loans within the portfolio.
What is the Modified Dietz Method?
The Modified Dietz method is a way to measure the performance (return) of an investment while accounting for external cash flows (like deposits or withdrawals). It's especially useful for portfolios where money is added or taken out during the performance period. Unlike a simple return formula, the Modified Dietz method weights each cash flow based on how long it was in the account.
The Formula
Where:
● EV = Ending Value of the portfolio
● BV = Beginning Value of the portfolio
● CF = Net cash flows during the period
● CFi = Individual cash flow
● Wi = Weight = proportion of the period the cash flow was invested (i.e., time from cash flow to end / total time)
An Example
Portfolio details:
● Beginning Value (BV) = $100,000
● Ending Value (EV) = $120,000
● Cash flow 1: $10,000 deposited on Day 10 of a 30-day month
● Cash flow 2: $5,000 withdrawn on Day 20
We want to find the Modified Dietz return for the month.
Step 1: Identify Cash Flows and Weights
Step 2: Plug into the Formula
Modified Dietz return = 14.29% for the month
Key Element – What happens when the ending value isn’t known (i.e. the investment is ongoing)?
If you’re given the performance return, then you can rearrange the Modified Dietz formula to solve for Ending Value (EV) instead:
Where R is the Modified Dietz return. We estimate the Ending Value of the portfolio by using the target return as the return for the period.
Note: For the Flywheel Portfolio, we use 9% as the target rate of return to estimate the ending value. Actual (realized) returns may differ based on loan performance.