How do I find the IRR of my investment in Kubera?
By now you must have already figured that you add assets in Kubera to see their latest value.
Optionally you many enter the cost of the asset and Kubera shows you the how your investment is doing (IRR). You may enter just a simple Cost Basis or the ongoing Cash Flow (if you are constantly putting in and taking out money from this investment), and Kubera calculates the IRR of the investment. This is how it works.
After you entered the asset and saw its current value, click on the row's details button and go to the Returns tab.
Enter the Cash Flow of the investment. Cash In is all the money that you invested or contributed to the asset over time. E.g. The cost of the asset, the maintenance charges etc. When you withdraw some money out of the investment, it's Cash Out. E.g. The money you get when you sell the asset (fully or partially). Or dividends and rewards. Or the rent you receive for your investment property.
Tip: You may start by entering the total money you put in till date or the current cost basis as Cash In. This helps in starting afresh if you have a long history of cash in/out entries.
When you add a new asset in Kubera, the Returns tab will default to enter the Cash Flow, as it’s a better way to track returns for most investments. If you enter just the cost basis, whenever you make a contribution or withdrawal, you have to recalculate the cost basis and update it. It’s a lot more simpler to enter the cash in and out as they happen. But if you want to stick to entering Cost Basis, click on Enter Cost Basis.
The Returns tab will show Cost Basis if the connected account already provides it. You can switch to Cash Flow by clicking on the link given below. You may manually enter Cost Basis or Cash Flow even for connected accounts.
Better calculation of ROI.
Previously Kubera used to show a flat absolute return of the change from cost to value. Now it considers the time aspect of the investment and the multiple contributions & withdrawals to calculate a better rate of return - IRR. E.g. I invested $100,000 in April 2020 and its current value is $200,000. Previously it would show 100% Absolute Return, but now it shows 50% IRR as it takes the time aspect into consideration.
OK, you are now seeing the accurate rate of returns but still how do you know if it’s a good investment?
Kubera benchmarks your asset’s IRR with the returns from other popular indices and tickers (S&P 500, Apple stock, Bitcoin etc) for the same time period. I.e It shows if you had invested in S&P 500 or Apple stock for the same period of time how much returns you would have got.
So, is that house worth it?
Let’s take an investment property scenario and see the IRR calculation works.
- 5 years ago - Bought a house for $500,000
- 3 years ago - Did remodeling for $50,000
- Property tax - $4,000 every year
- Maintenance - $2,000 every year
- Rent collected - $60 - 65,000 every year
- Current value - $1.15 Million
The Returns screen would look like this.
PS: If you have a mortgage for your house, you should put the entire amount you paid for the house (down payment + loan amount) as the initial Cash In for the right IRR calculation. Not just the down payment.
You should only enter the interest component of your home loan EMIs as the monthly/annual Cash Ins. Your expense is actually the interest you paid. Not the amount you paid towards the principal.
Also remember to enter the mortgage balance in Debts. So that you see the accurate Net Worth.