Anacleto

Time-weighted vs money-weighted return: which one to read

Why your portfolio shows two returns, how each is computed, and why they differ when you add money over time.

If you invest a fixed amount every month, "how much did I make?" has two honest answers.

Time-weighted return

The time-weighted return (TWR) measures how the investments performed, ignoring when you added or withdrew money. The period is cut at every deposit and the pieces are chained together. It is the number to compare with an index or a fund, because it does not depend on your timing.

Money-weighted return

The money-weighted return (in Anacleto, on capital) is the rate that makes your deposits and withdrawals grow into today's value, the internal rate of return. It does depend on timing: money added just before a rise earns more than money added just before a fall. Anacleto shows it as a yearly rate only after a full year; before that it shows the simple percentage for the days elapsed.

Why they differ

With regular contributions most of your money arrives late, so the money-weighted figure gives more weight to recent months. A large gap between the two usually means the timing of your contributions helped or hurt.