Time-Weighted and Money-Weighted ReturnTWR
Time-weighted return removes the effect of deposits and withdrawals, so it measures the strategy itself. Money-weighted return — the internal rate of return of your cash flows — includes their timing, so it measures your actual experience.
Your broker says your portfolio returned +8% this year, but you're down money. Both can be true: one figure measures the strategy, the other measures what happened to your cash after you added more at the wrong time.
- Category
- Accounting, Tax and Operations
- Reading time
- 4 min
- Also called
- TWR vs MWR, Time-weighted return, Money-weighted return
- Updated
TWR and MWR in plain words
Time-weighted return strips out deposits and withdrawals; GIPS requires it because it removes the effect of client-driven external cash flows.1
Money-weighted return is the internal rate of return of your cash flows, which HM Treasury defines as the discount rate giving an NPV of zero.2
The two may produce divergent or even conflicting results.3
How to calculate both, step by step
List external flows
Note every deposit and withdrawal — external cash flows that enter or exit the portfolio.1
Value at each flow
Value the portfolio whenever a large flow happens.1
Compute sub-period returns
Return between each pair of valuations.
Link for TWR
Compound the sub-period returns geometrically.3
Solve for MWR
Find the IRR of all your cash flows plus the ending value.2
Compare
MWR shows the effect of your timing.1
Worked examples
Example 1 — Bad timing
TWR +8%, MWR ≈ −3%A hypothetical investor starts with $10,000; year 1 returns +20% ($12,000). They add $20,000 ($32,000); year 2 returns −10% ($28,800).
| TWR | 1.20 × 0.90 − 1 = +8% |
| MWR (IRR) | −10,000, −20,000, +28,800 ⇒ ≈ −3.02% |
| Money result | $28,800 − $30,000 = −$1,200 |
The time-weighted return may be positive while its money-weighted counterpart is negative.3
Example 2 — No flows
Both +4.5% totalA hypothetical $10,000 grows +10% then −5% with no deposits.
| TWR | 1.10 × 0.95 − 1 = +4.5% |
| Ending value | $10,000 × 1.045 = $10,450 |
| MWR | +4.5% over 2 years (same total) |
With no external cash flows there is nothing for TWR to remove, so both measures agree.1
Example 3 — Smaller deposit
MWR worse by ≈ 2.7 pointsA hypothetical $10,000 returns +10% ($11,000), then $10,000 is added ($21,000) and year 2 is −10% ($18,900).
| TWR | 1.10 × 0.90 − 1 = −1% |
| MWR (IRR) | −10,000, −10,000, +18,900 ⇒ ≈ −3.71% |
Money-weighted returns show the impact of the timing of external cash flows — here the larger balance suffered the loss.1
Time-weighted vs money-weighted return
| Aspect | Time-weighted (TWR) | Money-weighted (MWR) |
|---|---|---|
| Cash flows | Removed | Included |
| Measures | The manager or strategy | Your actual experience |
| Best for | Benchmark comparisons | Private equity and personal results |
| Calculation | Linked sub-period returns | IRR of cash flows |
Where each is used
Fund reporting
GIPS-compliant firms report TWR.
Personal accounts
MWR shows how your deposits fared.
Private equity
IRR suits unpredictable cash flows.
Benchmarking
TWR compares strategies fairly.
Advantages and disadvantages
Advantages
- TWR allows fair strategy comparisons.
- MWR shows the real effect of your timing.
- Using both explains confusing statements.
- Each is a standard, widely used method.
Disadvantages
- TWR ignores the money actually at stake.
- MWR is distorted by flows you control.
- TWR needs valuations at each flow.
- MWR can have multiple solutions.
Going deeper
Read as far as you need. Each level builds on the one before it.
Common mistakes
Comparing apples to oranges
Setting your MWR against a fund's TWR.
Blaming the strategy
A poor MWR may reflect your timing, not the manager.
Skipping valuations
Computing TWR without values at each flow.
Annualising short periods
Inflating returns measured over weeks.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- TWR removes deposits and withdrawals.
- MWR is the IRR of your cash flows.
- They can even differ in sign.
- GIPS requires TWR for comparisons.
- Use MWR to judge your own timing.
Frequently asked questions
Which return does my broker show?
Why is my return negative if the fund is up?
Is one more accurate?
Further learning
- Profit and Loss
The money behind the percentages.
- Dollar-Cost Averaging
Regular flows that shape MWR.
- Sharpe Ratio
Adjusting return for risk.
- Trading Journal
Logging flows and results.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- CFA Institute (GIPS). Guidance Statement on Calculation Methodology (opens in a new tab) Checked .
- GOV.UK (HM Treasury). Guidance note: the use of internal rates of return in PFI projects (opens in a new tab) Checked .
- CFA Institute. Using Brinson Attribution to Explain the Differences between Time-Weighted (TWR) and Money-Weighted (IRR) Returns (Digest Summary) (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Performance Metrics (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.