Time-Weighted Return Calculator
Calculate time-weighted return across multiple cash flow periods: isolate pure investment performance from deposit timing.
How It Works
Time-Weighted Return (TWR) is the gold standard for measuring portfolio performance because it eliminates the distorting effects of external cash flows (deposits and withdrawals). When you add money to your portfolio, simple return calculations can make it look like your investments performed better than they actually did. TWR solves this by breaking the measurement period into sub-periods at each cash flow event and computing the return for each sub-period independently.
This calculator takes your sub-period data (starting values, ending values, and any cash flows), computes the holding period return (HPR) for each sub-period, and then geometrically links them together. The result is a pure measure of investment performance that would match what you would get from a professionally managed fund. The comparison to simple return helps you understand exactly how much your timing of deposits and withdrawals affected the raw numbers.
The Formula
HPR_i = (EndValue_i - StartValue_i - CashFlow_i) / (StartValue_i + CashFlow_i)
TWR = Π(1 + HPR_i) - 1
Annualized_TWR = (1 + TWR)^(1 / TotalYears) - 1
Simple_Return = (FinalValue - TotalInvested) / TotalInvested
Delta = TWR - Simple_Return
Geometric linking compounds sub-period returns independently. Cash flows are excluded from return calculations to isolate pure investment performance.
FAQ
What is Time-Weighted Return?
TWR measures a portfolio's compound growth rate while eliminating the effect of external cash flows like deposits and withdrawals. This makes it the standard for evaluating investment manager performance because it isolates investment skill from the timing of client contributions.
Why does TWR differ from simple return?
Simple return does not account for when money was added or removed. If you deposited a large sum right before a big gain, simple return would overstate your skill. TWR removes this timing bias by computing returns for each sub-period independently.
How is TWR calculated?
Each sub-period is defined between cash flow events. The holding period return (HPR) is calculated as (end value - start value - cash flow) / (start value + cash flow). These HPRs are then geometrically linked by multiplying (1 + HPR) for each sub-period and subtracting 1.
Can I use negative cash flows for withdrawals?
Yes, use negative values for withdrawals. A positive cash flow means you deposited money (inflow). A negative cash flow means you withdrew money (outflow). TWR adjusts for both so they do not distort the true investment performance.
When would TWR equal simple return?
TWR and simple return will be identical when there are no intermediate cash flows. Any difference comes from the timing of deposits and withdrawals relative to portfolio gains or losses.
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