Modified Dietz Method
Categories: Financial Theory, Accounting
No, it's not a German sexual act, made simpler for old people.
You have your investment portfolio all set up. But how do you determine its expected returns? The industry standard is the Modified Dietz Method, a formula for calculating the estimated returns of a portfolio based on a dollar-weighted analysis.
As the name implies, the Modified Dietz Method is a modified version of the simple Dietz Method, which calculates the cash flow more simply, and thus less accurately.
One would think the Modified Dietz Method would go out of vogue with the real-time updates and computer power that we have today, but that's not the case. The Modified Dietz Method is the tried-and-true time-weighted calculation you can expect from modern portfolio managers. It’s even recommended by the Investment Portfolio Council (IPC) as a way to increase standardization and transparency in portfolio management worldwide.