Time Weighted Return Calculator
Calculate the time weighted return that measures investment performance independently of deposits and withdrawals, alongside the money weighted return that measures your actual outcome.
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Two questions with two different answers
If you deposit money just before a fall and again just before a rise, your account balance tells a different story from the performance of the investments in it. Time weighted return measures the investments by breaking the period at every cash flow and chaining the sub period returns, which removes the effect of when money went in. Money weighted return, which is the internal rate of return of your cash flows, measures what you actually experienced. Both are correct answers to different questions.
Which one to use when
Fund managers are measured on time weighted return because they do not control when investors deposit or withdraw, and it is the basis of the Global Investment Performance Standards. An individual investor judging their own outcome wants the money weighted return, because the timing of their contributions was their decision and its effect is part of their result. Comparing your money weighted return against a fund's published time weighted return is the most common apples to oranges error in personal performance measurement.
The gap is behaviour
The difference between the two is the return contributed or destroyed by the timing of cash flows. Studies of investor behaviour consistently find money weighted returns below the time weighted returns of the same funds, by roughly one to two percentage points a year, because money arrives after good performance and leaves after bad. Measuring both puts a number on that gap for your own portfolio, which is more useful than any general finding about investors as a group.
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Frequently Asked Questions
When should I use time weighted return?
When judging the investments or the manager, and whenever comparing against a benchmark or a published fund return. It removes the effect of deposit and withdrawal timing, which the manager did not control.
When should I use money weighted return?
When judging your own outcome, because your contribution timing was your decision and its effect belongs in your result. It is also the right measure for anything where you control the cash flows, such as a property or a private investment.
Why do the two figures differ?
Because money weighted return weights each period by how much capital was invested in it. A large deposit just before a strong period raises the money weighted return above the time weighted one, and just before a weak period lowers it.
Should a cash flow count as start or end of period?
It matters for accuracy. The convention here treats flows as occurring at the start of the sub period, which is the modified Dietz assumption. For large mid period flows, breaking the period at the flow date is more precise.
What is a large gap between the two telling me?
That the timing of your contributions has had a material effect. Persistently negative, meaning money weighted below time weighted, is the classic pattern of buying after strength and selling after weakness, and it is the single most addressable drag on individual investor returns.
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How to Use
Enter each period with its starting value, ending value and any cash flow during it.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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