Time-weighted vs money-weighted return
Two honest answers to “how did I do?”, and they are rarely the same number. One measures the investments. The other measures what your money actually earned, which depends on when it arrived. It runs in your browser. Nothing you type is sent anywhere, and nothing is saved when you leave.
| Date | In (+) or out (−) | Value that day, after | Remove |
|---|---|---|---|
- Time-weighted, per year
- 14.79%
- Money-weighted, per year
- 5.63%
- Gain in dollars
- $7,000
31.80% over the whole period.
Already a per-year rate. There is no cumulative form.
Ending value less starting value less $55,000 net in.
Your money-weighted return is 9.16% a year below the time-weighted one. More of your money was present for the weaker stretches of this period than for the stronger ones.
What each one measures
Time-weighted return breaks the period at every deposit and withdrawal and chains the pieces together. Because each piece is measured from the value that started it, the size of a cash flow cannot move the result. It is the return of the holdings, and it is what a fund quotes, which is why it is the only fair way to compare a portfolio against a benchmark or against a fund.
Money-weighted return is the single annual rate that would have turned your actual deposits, on their actual dates, into your actual ending value. It is an internal rate of return, the same calculation a spreadsheet calls XIRR. A dollar that was present all period counts for more than one that arrived last month, so the answer moves with the timing and the size of every contribution.
Neither is the “real” one. They answer different questions, and a statement showing only one of them has quietly picked which question you are allowed to ask.
What to enter, and what it does not handle
- Only external money counts as a flow. Cash you deposited or withdrew. A dividend paid into the account and a security you sold are both inside the portfolio. They are already in its value, and entering them as flows would count them twice.
- The value on a flow day is the value after the money moved. That is what your statement shows, and the calculation subtracts the flow back out itself before measuring that stretch.
- A period with no flows needs no rows at all. Both returns collapse to the same thing, which is the honest answer rather than a missing one.
- One currency. A portfolio holding both Canadian and US securities has an exchange-rate effect inside every one of these figures, and separating it needs a rate for each date rather than one at the end.
- Under a week, no annualized figure is shown. Turning six days into an annual rate raises the number to the power of sixty; the result looks precise and is mostly rounding.
Educational only, and accurate to what you enter. This is not advice and it is not a projection. For the concepts behind it, read time-weighted vs money-weighted return. Which one to put beside an index is the subject of benchmarking your portfolio, and turning either into a yearly rate is the subject of CAGR vs average annual return. For how Luum computes both across your real accounts, see portfolio returns.