The Modified Dietz Method is an alternate method of calculating an individual's return on their investment. It offers a much clearer look at the actual rate of return on the portfolio, rather than the traditional method of taking the net return from start to finish and dividing it by the time period in question.

The Modified Dietz Method is based on the original Dietz Method which was developed in 1932 by Raymond Dietz. It takes into account all of the money that has moved into and out of the portfolio during the analysis period, including cash flows such as contributions, withdrawals, and fees. This type of analysis allows investors to observe performance during a given period, rather than obscuring the potentially more significant impacts of these cash flows on the portfolio.

The Modified Dietz Method is an easier way to calculate a rate of return that allows investors to better compare investment performance to competitors and other indices. It makes it easier for investors to track the performance of their investments over time, as it provides a much more accurate picture of the return that is generated and provides greater flexibility to analyze both historical and hypothetical returns.

For example, investors can use the Modified Dietz Method to compare the total return of an investment that has gone up five percent in a month to the total return from an investment that gained five percent, yet experienced five percent of withdrawals before the end of the month. The traditional method would not be able to take into account the withdrawals, whereas the Modified Dietz Method does.

In addition, the Modified Dietz Method also makes it easier to compare the performance of an asset to a benchmark index or another asset. For example, an investor could compare the total return of a stock to an index or to another stock to determine if their asset is outperforming its peers.

In any case, the Modified Dietz Method is an invaluable tool for investors to track their portfolio performance, as it provides a much more accurate picture of their return, as well as other external factors that could potentially impact their returns. Because of its accuracy and flexibility, the Modified Dietz Method is now widely used by investment companies in reporting results to clients and is considered a very reliable option for investors.