Mathematics and Accounting of withdrawals and deposits in a shared portfolio

External question — Personal Finance Stack Exchange Author: Erfan Ahmadi Original post: https://money.stackexchange.com/questions/156647 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. My friend is a day trader and works with money, after days of research I still haven't found a method or approach to accounting our shared account. I've came across keywords such as pooled funds, dividends, etc but no clue how to do the accouting. What basically happens is that I give him a certain amount of money to start working, he currently has been making profits (fortunately). We plan to split the profits and losses 50/50, that's reasonable right? On the other hand I want to be able to withdraw or deposit money during our contract which makes calculations and accounting a bit harder. I'm pretty good at math but I'm new to finance, I don't know methods that solves this issue which is fair to both sides. and I want to understand the math behind it so I could design an excel sheet that automates it. Notice that I'm not the only one that gave money to my daytrader friend and he trades with a fixed percentage of the total amount. but there is no worries as everything has been logged and recorded until now.. Thanks in advance. Update: please pay more attention to the mathematics and logistics of things. It's not a scam, he's a professional and i trust him, but we're both bad at accounting. Also to make things simple, please assume truthfulness, open communications and existent restrictions in the contract.

External answer — Personal Finance Stack Exchange Author: D Stanley Original post: https://money.stackexchange.com/a/156652 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. We plan to split the profits and losses 50/50, that's reasonable right? Only if you both invested an equal amount - if you invest 90% then you should get 90% of the profit. What would be a more practical approach if if your friend accounted for everyone's "bucket" separately (including his) and took a reasonable percentage periodically for himself. So if you invested $1,000, he invested $2,000, and another friend invested $1,000, each of you could calculate the gain from the fund overall based on how much you invested. So if the fund made a 20% return and your friend took a 5% fee, each "bucket" would get a 15% increase in value. Now you have $1,150 in your "bucket". If you took out $500 from your bucket, you would have less invested and share in less of the gains. If you cannot account for the individual investor's portions of the fund, then you are setting yourself up for fraud - what's to keep your friend from saying that your investments didn't make any money and keep them all for himself? That's not the only way to set up a fund, but it is a common setup. There are other structures that can be established such as you not losing anything if the fund loses in exchange for, say, only 50% of the gains. Meaning if the fund loses 10%, you don't lose anything, but if the fund earns 30% you only get a 15% increase. That shifts some of the risk to the fund manager in exchange for lower returns for you. Whatever you do, make sure it is in writing, you understand it fully, and there is transparency into transactions, holdings, and performance. You also need to make sure that appropriate taxes are paid by everyone :)

External answer — Personal Finance Stack Exchange Author: mhoran_psprep Original post: https://money.stackexchange.com/a/156653 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. You have a situation where you and others are giving money to a person and have no idea what is happening to your funds. If you invest with a registered investment service they have obligations regarding record keeping, and tax forms. You will have none of that. This may lead to even more headaches beyond how to track profits. Also if you have never met this friend in person, this could be a scam.

External answer — Personal Finance Stack Exchange Author: keshlam Original post: https://money.stackexchange.com/a/156696 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. There is no "mathematics" here. You should be paying the other party no more than what you think their contribution is worth. If they aren't willing to work for that low a fee, you probably shouldn't be doing business with them. As others have said, you should be paying this person at most a small commission on actual profits when you cash out, or a small fixed amount based on the hours they spend working on your money rather than their own or someone else's, or both but less of each. Every bit of of your profit they get subtracts directly from your returns; if it's more than a percent or two you will rapidly find that your actual returns will be better by working with a more legitimate broker. In fact, part of the reason index funds are so effective is that their overhead is typically more like 0.1%. I'd say giving them 5% was excessively generous, never mind the 50% they seem to be trying to talk you into. Whether you're being scammed or not, you need to compare what you're getting for your dollars with what you could get elsewhere. And day trading is FAR less profitable than people seem to believe, especially when you don't have a brokerage large enough to pay for the hardware and location to execute sub-microsecond trading responses. Yeah, day-trading is exciting. You don't want excitement; you want returns.