Free for 90 days: Sign up now and get 90 days managed free after your first deposit. See offer details

Understanding Performance

Displaying Performance to Shape Better Investor Behavior

Understanding your accounts’ performance can feel complicated. We’re advancing how we display performance to help answer your questions and make stronger investment decisions.

Articles by Adam Grealish

By Adam Grealish
Director of Investing, Betterment  |  Published: September 14, 2018

At Betterment, we’re used to getting questions about performance. And that’s a positive thing. As an investor, you should know if your investments are doing as well as they could be, or if you should make changes to meet your goals.

Over the years, we’ve evolved how we display performance within Betterment accounts to help answer your questions more fully. And as we make changes, we try to learn by receiving your feedback and by using observation and research where possible. Today, we’re sharing news of several recent updates to how we display your performance within Betterment.

What’s built into Performance at Betterment?

Our approach here is to help you gain full context of your performance. Within “Performance,” we work to provide you with both clarity and context for understanding how well your investments are doing. Today, “Performance” includes several important features:

  1. We show you both money-weighted returns and time-weighted returns on the main performance page. We’ll describe these different calculations of returns and what questions they help answer later on.
  2. We display your deposits and withdrawals and specific ways that Betterment has added value in helping you to achieve your goal.
  3. You have the option to see returns over your investment period expressed as a cumulative return or on an annualized basis.
  4. We also include internal rate of return, which is an industry standard calculation of “all-in” personal performance that takes the size and timing of deposits and withdrawals as well as portfolio performance in account.

All performance measures are displayed after Betterment’s fees.

Questions we aim to answer in “Performance”

Compared to our last design of “Performance,” we have not changed or removed any performance numbers. Our approach is to find the right location for all the performance information we give you.

As you can see below, we have placed money-weighted returns and time-weighted returns on the same page. Previously, each occupied a separate page.

Our latest approach to displaying accounts’ performance is visualized above. The example highlights all three measures of returns.

As you can see in the updated design, we have grouped performance information in sections with clearer context. By organizing performance information into individual sections, we hope to enable you to answer specific performance question quickly and accurately.

Common performance questions

Generally, customers come to the Performance page to answer one question: “What was my performance?” However, we’ve found that that question can hold many meanings to different people. Some people are thinking “How have my investments performed compared to a well-known index like the S&P 500?” Others are asking “What was my personalized performance taking everything that I’ve done into account, including allocation changes and deposits and withdrawals?”

Below, we will explore the most common performance-related questions and the best way to answer them.

How did my investments at Betterment perform compared to another investment?

To answer this question, you should use a time-weighted return. Time-weighted return is the total growth of a dollar invested at the beginning of the investment period. Because time-weighted returns are unaffected by the amount and timing of deposits and withdrawals, it should be used to compare performance across different investments as we do not want personal deposits and withdrawals to influence the comparison.

I don’t want to compare to other investments or providers; I want to know the rate of return that is personal to the activity in my account, including deposits and withdrawals.

Money-weighted returns are generally best for getting a personalized ‘all-in’ rate of return, which can’t be accurately compared with other investments because the timing and performance of each individual deposit and withdrawal will impact your return.

In cases where you wish to understand the total ‘all-in’ personal return of your account, we recommend that you use internal rate of return. We recommend internal rate of return because it accurately accounts for the effects of deposits and withdrawals throughout your investment period. Because internal rate of return is influenced by your deposits and withdrawals, you should not use this measure to compare two investments, unless they have the exact same deposit/withdrawal amounts and dates (a situation that is highly unlikely).

How did allocation changes help or hurt my performance compared to a static allocation?

Comparing your account’s time-weighted returns to the time-weighted returns of a Betterment model portfolio will help you understand how allocation changes impacted your investment performance.

As you can see above, each return number helps answer a very different question. In the updated design, we surface each of these numbers within their associated context. For example, you can only compare your account’s performance to other investment options using time-weighted returns.

By putting them both on the same page with clear context, we aim to make understanding your performance more straightforward and transparent.

How Different Investment Return Numbers are Calculated

Let’s address the differences between the return numbers that we display on the performance page in more detail.

We display three different return numbers, each with a distinctive purpose:

  • Time-weighted return. As mentioned before, time-weighted return is the total growth of a dollar invested at the beginning of the investment period. Time-weighted returns are unaffected by deposits or withdrawals, making comparison to other investments more accurate.
  • Simple earnings percent. This is the simply the total amount earned over the investment period divided by the total amount invested. Deposits and withdrawals will impact this number, and significant withdrawals can make it hard to interpret.
  • Internal rate of return. This is the total amount earned over the investment period divided by the average amount invested. Technically, this is called the modified-Dietz internal rate of return. Internal rate of return seeks to accurately account for the effects that the size and timing of deposits and withdrawals have on your account performance.

Both simple earnings percent and internal rate of return will change with deposit and withdrawal activity. An example helps clarify this point.

Imagine you invest $100 for one year without any additional deposits or withdrawals, and the portfolio grew by 10%. You now have $110. At this point, all three return numbers will be exactly the same:

  • Time-weighted return: 10%
  • Simple earnings percent: 10% = $10 / $100
  • Internal rate of return: 10% = $10 / $100

Now, imagine that you make an additional deposit of $10,000. What do these different return numbers tell us?

  • Time-weighted return: still 10%.
    The investment portfolio itself has not changed, nor has its performance over the past year
  • Simple earnings percent: 0.9% = $10 / 10,100.
    This deposit has lowered your Simple earnings return because you have added more money to your account and it has not had time to grow.
  • Internal rate of return: 7.9% = $10 / $127.
    Over most (365 out of 366 days) of your investment period you had $100 invested and for one day (1 out of 366) you had $10,100 invested. The internal rate of return reflects this by averaging the total amount that you invested over the investment period: $127 in this case.

Since simple earnings is just your current earnings divided by your current net deposits and does not account for the timing of those deposits, it serves as a simple and easy-to-calculate “gut check” on your account performance. As you can see in the example above, while it may be true that your current earnings are ~1% of our current net deposits, it may not be a fair characterization to say that the account only returned 0.9% percent. Internal rate of return seeks to address this.

Internal rate of return accounts for both the size and timing of deposits and withdrawals. As you can see in the example, internal rate of return accounts for the fact that you had $100 invested for a lot longer than you have $10,000 invested. Because internal rate of return accounts for the size and timing of deposits, we recommend using internal rate of return to get the most accurate view of your personal performance, accounting for investment performance, allocation changes and deposits and withdrawals.

Choice of cumulative or annualized returns

We realize some customers may prefer to see return numbers expressed on an annualized basis to answer the question, “What annual growth rate would have led to my current cumulative performance?” We listened to that feedback, and now, you can toggle between cumulative and annualized returns for your specified investment period.

You should note that the annualized returns calculation will only be available when the period you’ve selected is equal to or greater than one year. If an account hasn’t yet been open for that long, then you won’t see the option. Annualizing performance from less than a year can be misleading as it exaggerates any return.

Three contributors to performance

When looking at performance we encourage investors to ask three simple questions:

  • What did I do to contribute to performance?
  • What did the market do to contribute to performance?
  • What did Betterment do to contribute to performance?

The updated performance section aims to make these contributions clearer. In addition to return numbers, we have added sections that highlight actions that both you and Betterment have taken to contribute to your account’s performance.

You can contribute to your performance in a number of ways. The first is through deposits and withdrawals. As we saw earlier, deposits and withdrawals will affect your money-weighted return numbers. You can also impact your performance by the initial stock allocation that you choose and any subsequent changes to that allocation. It’s worth noting that depending our the exact actions, your contributions to performance may be positive or may be negative.

The market contributes to performance by doing what the market does best: gyrates up and down in the short-term and generally grows in the long-run. In most portfolios, market movements will be a primary driver of returns. You can explore the contribution of the market in the time-weighted investment returns section.

Betterment contributes to performance by managing risk through reinvesting dividends, rebalancing, and improving after-tax returns with our tax lot management algorithm, Tax Loss Harvesting™, and Tax-Coordination. The impact of these tax optimization features will not show up in the three returns calculations because they’re all measured before taxes. This is why we show the contributions of tax optimization features in its own section.

It’s worth noting: For taxable investments, returns calculations will not show you the reality of how much money you’ll get to keep after taxes. That measure will depend on inherently personal factors like when your investments are sold and which tax bracket your income puts you in. Learn more about estimating your after-tax returns.

Together, these three elements—you, the market and Betterment—make up your performance.

Clearer performance leads to better investing

We believe that a clear and comprehensive understanding of investment performance leads to better investing decisions. This is the principal motivation for making improvements to our performance display, and we’ll remain committed to continual iteration with your feedback and questions.

Contributing Authors

Dan Egan
Managing Director of Behavioral Finance & Investing, Betterment

Caleb Rotach
Product Manager, Betterment

Recommended Content

View All Resources
Is Betterment Worth It? Estimating the Added Value of a Robo-Advisor

Is Betterment Worth It? Estimating the Added Value of a Robo-Advisor

Based on our estimation, using Betterment’s retirement recommendations could earn you 38.8% more after-tax money in retirement compared to investing on your own.

Redesigning How You Manage Your Finances at Betterment

Redesigning How You Manage Your Finances at Betterment

Our new design represents a synthesis of a large body of customer feedback. We hope it meets your expectations.

Investing’s Pain Gap: What You Put Up With To Earn Returns

Investing’s Pain Gap: What You Put Up With To Earn Returns

Markets are frustrating—especially when you look at a year’s worth of returns. Year to year, you can easily experience what we call the pain gap. The key is to not let the pain gap create a behavior gap between your account and market performance.

Explore your first goal

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.


Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.


Search our site

For more information and disclosures about the Betterment Resource Center, click here. | See our contributors.