The '''Simplesimple Dietz Methodmethod''' is a means of calculating an approximation of investment portfolio performance during a period of external cash flows into/out of the portfolio.<ref>Dietz, Peter O. ''Pension Funds: Measuring Investment Performance''. Free Press, 1966.</ref> It addresses some of the weakness of the [[Internal Rate of Return]] (IRR) calculation.
The Simplesimple Dietz Methodmethod calculates performance as follows:
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Where <math>M_1</math> is the starting value of the portfolio, <math>M_2</math> is the ending value of the portfolio, <math>R</math> is the portfolio rate of return, and <math>C</math> is the total external cash flows during the period (cash flows out of the portfolio are negative and cash flows into the portfolio are positive). This method assumes that all such cash flows are made mid-way through the period of analysis.
This method is somewhat more computationally tractable than [[Internalinternal Raterate of Returnreturn|IRR]]. However, the assumption that all cash flows are made at precisely the middle of the evaluation period remains troubling. This deficiency was the inspiration for the [[Modifiedmodified Dietz Methodmethod]], a clear improvement for the general case where there are cash flows which are not made at the midpoint of the period being analyzed.
Like the more general [[Modifiedmodified Dietz Methodmethod]], the Simplesimple Dietz Methodmethod is only an approximation. The only precisely correct means of calculating returns in the presence of external cash flows is to use the [[Truetrue Timetime-Weightedweighted Raterate of Returnreturn]].
==See also==
*[[Internal Raterate of Returnreturn]]
*[[Modified Dietz Methodmethod]]
*[[Rate of Returnreturn]]
*[[True Timetime-Weightedweighted Raterate of Returnreturn]]
