Guides

Ask three people what their portfolio returned last year and you will get three answers computed three different ways. Not because anyone is lying, but because "return" is ambiguous, cost basis is a modelling choice, and currency conversion has at least four defensible conventions. This guide walks through the decisions you have to make, and what happens when you make them badly.

1. Track lots, not positions

The single most common mistake is storing one row per ticker: 40 shares of Apple at an average of $150. It is compact, and it destroys information you cannot reconstruct later.

Store one row per purchase lot instead — every buy, with its own date, quantity, price and currency. An average price is a summary you can always recompute from lots; lots can never be recovered from an average. The moment you sell part of a position, or want to know how the shares you bought in 2021 have done versus the ones you bought last month, or need a holding-period figure for tax, the averaged row is useless.

It matters more than it sounds. Consider two purchases of the same stock:

Averaged, you hold 40 shares at $150. At $200 a share you are "up 33%". But lot A is up 67% and lot B is down 17%. Those are two completely different investments that happen to share a ticker, and the average hides the fact that your recent decision was a bad one.

2. Decide how sales consume lots

When you sell 15 of those 40 shares, which shares left? The answer changes your realised gain and, in most countries, your tax bill.

• FIFO (first in, first out) — the oldest shares go first. This is the default in most jurisdictions, including Spain and the UK for most cases, and it is what BensTrack uses. Selling 15 shares takes all of lot A's oldest 15.
• Specific identification — you nominate which lot to sell. Permitted in the US and useful for tax-loss harvesting: sell the expensive lot to realise a loss while keeping your cheap shares.
• Average cost — every share has the same basis. Simple, mandatory for funds in some countries, and it makes lot-level analysis impossible.

Whichever you choose, be consistent, and record the sale as a separate transaction rather than editing the original purchase. A sale is an event with its own date and price. Overwriting the buy row erases your history and makes every past-dated chart wrong.

3. Keep realised gains on the books

Here is a subtle failure that makes portfolio charts lie. You buy at $100, the position doubles, you sell, and your "total return" line drops back to zero because you no longer hold anything.

That is nonsense: you earned the money. Realised gains have to be carried forward. The clean way to think about it is that your portfolio has two components — the market value of what you still hold, plus the cash you are sitting on from sales — and your profit is the sum of unrealised and realised gains. Sell everything and your profit should stay exactly where it was, not vanish.

4. Convert currency at the right date

If you are a euro investor holding US stocks, you have two return drivers: the stock and the exchange rate. Getting this wrong produces returns that are silently off by 10–20%.

The rule is simple once stated:

• Cost basis converts at the rate on the purchase date. That is what you actually paid in your own currency, and it never changes afterwards.
• Market value converts at today's rate.

Convert the cost basis at today's rate instead and you erase the entire FX component of your return. A US stock that went nowhere while the dollar strengthened 12% against the euro made you 12%, and your tracker should say so.

One practical wrinkle: if your broker gave you a specific rate on a specific trade, use that figure rather than the daily close. It is the truth for that transaction, and the small discrepancy compounds across dozens of trades.

5. Treat dividends as return, not noise

A share that pays a 4% dividend and stays flat did not return zero. Yet plenty of trackers show only price appreciation, because dividends arrive as separate cash events and are annoying to join back to the position.

Count them. Dividends received on a holding are part of that holding's return, and over a decade on a mature business they are frequently the majority of it. The related question — whether to model them as reinvested or as accumulating cash — depends on what you actually did. Reinvest automatically? Compound them. Spend them? Add them as simple cash.

A useful derived figure once you track them is yield on cost: trailing twelve-month dividends divided by what you originally paid, rather than by today's price. A position bought eight years ago at a 3% yield that has grown its dividend since may be yielding 9% on your cost. That is the number that tells you whether a dividend-growth thesis is working.

6. Do not forget the fees

Commissions, FX spreads, custody charges and stamp duty are all real reductions in your return, and none of them appear in the share price. The cleanest treatment is to fold buy-side costs into the cost basis and subtract sell-side costs from the proceeds, so the fee shows up as a smaller gain rather than as a mysterious separate line.

7. Then measure the return properly

With lots, sales, currency and dividends recorded correctly, you can finally compute a return that means something. And here you face one more choice — whether to measure the performance of your picks or of your timing. They are different numbers and both are legitimate, which is the subject of the next guide.

A minimal checklist

• One row per purchase, never one row per ticker.
• Sales recorded as their own dated transactions, matched to lots by a consistent rule.
• Realised gains carried forward so profit never disappears on a sale.
• Cost basis frozen at the purchase-date exchange rate; market value at today's.
• Dividends recorded against the position that generated them.
• Fees folded into basis and proceeds.
• Returns computed time-weighted, so deposits are not mistaken for performance.

BensTrack's portfolio tracker does all of the above by default. If you prefer a spreadsheet, that is fine too — just make sure it does these seven things, because the ones that skip them tend to flatter you.