Internal Rate of Return (IRR) --the Excel function XIRR-- is probably the most “accurate” way of reporting performance. It takes into account all the cash flows: deposits, withdrawals, buy, sell, dividends, etc. It can measure any length of time and the result is always annualized. I don’t use it for the portfolio as a whole but I do use it for each individual position to see how my trading is doing.
To give an example. I bought AXP in 2008 (bad timing) but things improved considerably after 2009 to the point that (with the help of options) my AXP position was outperforming AXP’s historical performance. But it started to slow in 2014 and volatility was too low to make it worth while to sell covered calls so I sold AXP recently. From March 2008 through November 2014 I made 15.4% (net after commissions and taxes) outperforming AXP’s average of 12%.
http://invest.kleinnet.com/bmw1/stats30/AXP.html
For the portfolio as a whole I just use starting and ending numbers (including cash) and use the rate function to figure the performance.
On the comparison with market indexes (S&P 500, DJI, NASDAQ) you’ll get divergent opinions. I like to see how I’m doing vs. the major indexes but others will say that what counts is how you are doing against your needs or your own targets.
If you have lots of loot, you can play it safe, buy the bluest of the blue chips and be happy with a 3 to 4% return because your target is capital preservation. If you have less loot and you need an income, then you might go for higher returns but at the cost of higher risk. This is very individual and there is no one size fits all.
Denny Schlesinger
PS: I have no idea how your broker calculates your return so I have no comment on that. I use my own spreadsheets and portfolio web-app to keep track of things.