About the Time-Weighted Return Calculator
This time-weighted return (TWR) calculator measures how well a portfolio’s investments performed, independent of when money was added or taken out. Break the history into sub-periods at each deposit or withdrawal, enter the value at the start of each period, the cash flow at that point and the value at the end, and it links the sub-period returns into one cumulative and annualized figure.
TWR is the standard used by fund managers and in the CFA Institute’s GIPS standards, because it judges the investment choices rather than the timing of the client’s cash flows. Individual investors can use it to compare their own portfolio fairly against an index fund or a manager’s published returns.
For comparison the calculator also shows the money-weighted return (an IRR on the same cash flows), which reflects your actual experience including the timing of contributions. The money-weighted figure assumes each sub-period is the same length; the TWR needs no such assumption.
With the default inputs, the cumulative time-weighted return is 20.13%. Change any value above to recalculate instantly.
How to use the time-weighted return calculator
- 1Split your history into sub-periods, starting a new one at each deposit or withdrawal.
- 2On each line enter the value before the cash flow, the cash flow (+ or −), and the value at the end.
- 3Enter the total number of years covered to get an annualized figure.
- 4Read the cumulative and annualized TWR.
- 5Compare with the money-weighted return to see how your timing affected results.
Formula and method
The history is split into sub-periods at every external cash flow. Each holding-period return compares the ending value with the starting value plus the cash flow added at the start of that period, so a deposit is never counted as performance. Geometrically linking (multiplying) the 1 + HPR factors gives the cumulative time-weighted return, which can be annualized over the total number of years Y.
The money-weighted return solves for the single per-period rate (an internal rate of return) that makes the initial value plus all later cash flows grow to the final value, then compounds it over all periods. It treats every sub-period as equal in length; when that is not true, use an XIRR calculator with actual dates.
- Sₖ
- Portfolio value at the start of period k, before the cash flow
- CFₖ
- Deposit (+) or withdrawal (−) at the start of period k
- Eₖ
- Portfolio value at the end of period k
- Y
- Total length of all periods in years
Worked examples
Four quarters with a deposit and a withdrawal
The quarterly returns are 105,000 ÷ 100,000 − 1 = 5%, 118,000 ÷ 115,000 − 1 = 2.61%, 120,000 ÷ 113,000 − 1 = 6.19% and 5%. Linking them, 1.05 × 1.02609 × 1.06195 × 1.05 − 1 = 20.13% for the year. The money-weighted return is slightly lower because the $10,000 deposit went in before a weaker quarter.
Two years, big deposit before a fall
Year one returned 20%; year two returned 140,000 ÷ 160,000 − 1 = −12.5%. The TWR is 1.20 × 0.875 − 1 = 5%, or 2.47% a year, even though the account lost $10,000 overall because most of the money was invested during the down year. The money-weighted return captures that experience: about −5.06% per year, or −9.87% cumulative over the two years.
No cash flows: TWR equals simple growth
With no deposits or withdrawals, three 10% years compound to 1.1³ − 1 = 33.1%, which annualizes to exactly 10%. Time-weighted and money-weighted returns are identical when there are no cash flows.
Frequently asked questions
What is the difference between time-weighted and money-weighted return?+
Time-weighted return removes the effect of deposits and withdrawals and measures investment skill; money-weighted return (IRR) includes the timing and size of your cash flows and measures your personal result. They are equal when there are no cash flows.
Why do fund managers report time-weighted returns?+
Managers do not control when clients add or withdraw money, so a fair performance measure must not reward or penalize them for it. The GIPS standards require time-weighted returns for most composites for this reason.
How often do I need portfolio valuations for TWR?+
Exact TWR needs a valuation on every date an external cash flow occurs. If you only have monthly or quarterly values, methods such as Modified Dietz approximate the return within each period.
Do dividends count as cash flows?+
Not if they stay in the account. Dividends and interest earned by the portfolio are part of the return; only money moved in or out of the portfolio from outside counts as an external cash flow.
How do I annualize a time-weighted return?+
Raise 1 + cumulative TWR to the power of 1 divided by the number of years, then subtract 1. A 21% return over two years annualizes to 1.21^(1/2) − 1 = 10%. Returns for periods under a year are usually not annualized.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.