Think of it as a thermometer and a bank statement. A thermometer tells you how hot the room is, no matter who walks in or out. A bank statement tells you what actually happened to your cash. Time-weighted return is the thermometer for your fund or strategy. Money-weighted return is the bank statement for you.
In this guide you will learn what each measure is, how to calculate both step by step, which one to trust for which decision, and the mistakes that make performance reports look better or worse than reality. We use real worked examples from Corporate Finance Institute plus one of our own, and every currency figure uses USD or a neutral local equivalent.
Screenshot: a worked money-weighted return example on a $100 stock, captured 31 October 2026.
What Is Time-Weighted vs Money-Weighted Return?
A time-weighted return (TWR) measures the compound growth rate of a portfolio while removing the effect of deposits and withdrawals. It chops the period into sub-periods whenever cash moves in or out, calculates the return for each slice, and links them together. Because it ignores how much money was invested at each moment, it judges the strategy or manager, not the investor.
A money-weighted return (MWR) is the internal rate of return (IRR) of your actual cash flows. It asks what single annual rate would turn every deposit and withdrawal you made into your ending balance. Big contributions made just before a rally pull it up. Big contributions made just before a drop pull it down.
In short, TWR answers whether the investment did well. MWR answers whether you did well with it. Both are legitimate, and they only match when you make no cash moves during the period.
Why the Difference Between Time-Weighted and Money-Weighted Return Matters
If you add money after a strong run, your own results will lag the fund. If you add before a strong run, they will beat it. That is investor behaviour showing up in the numbers, and it is the reason a fund can post a healthy long-run return while many of its holders feel they never made much.
Fund factsheets report time-weighted returns. Industry performance standards such as the Global Investment Performance Standards (GIPS) favour time-weighting for composites because it strips out client cash flows the manager does not control. When you compare funds, you are comparing thermometers.
Your personal brokerage app often reports something closer to a money-weighted figure. That is why the return on a factsheet and the return in your account rarely agree, even when you hold the fund for the whole period.
28.40% was the time-weighted return in Corporate Finance Institute's one-year example, even though the portfolio had a $12,000 withdrawal and a $20,000 deposit along the way.
How to Calculate Time-Weighted and Money-Weighted Return
You do not need software for either measure. You need a clean list of dates, balances, and cash flows. Here is the process.
Step 1: Log every cash flow and every valuation date
Write down the starting balance, each deposit or withdrawal with its date, and the portfolio value on the day before and after each flow. Missing a single flow is the most common source of wrong answers.
Step 2: Time-weighted return, slice by slice
Split the period at every cash flow. For each slice calculate the holding interval return (HIR): ending value minus beginning value, adjusted for any flow, divided by beginning value. Then add 1 to each HIR, multiply them together, and subtract 1. In symbols: TWR = (1 + HIR1) x (1 + HIR2) x ... x (1 + HIRn) - 1. If the period is longer than a year, annualise the result.
Screenshot: the four holding intervals, the $12,000 withdrawal and the $20,000 deposit, captured 31 October 2026.
Step 3: Money-weighted return, solve for the rate
Set the present value of all inflows equal to the present value of all outflows and solve for the discount rate. There is no closed-form answer once you have several cash flows, so use the IRR function in a spreadsheet or solve by trial and error. A spreadsheet needs your flows listed by date, with deposits negative and the ending value positive.
Step 4: Compare and interpret the gap
Subtract your MWR from the fund's TWR. A positive gap means your timing hurt you. A negative gap means your timing helped. A gap near zero means you mostly invested steadily, which is what a recurring investment plan is designed to do.
For deeper risk context, pair either return with a risk measure such as the Sharpe ratio or the maximum drawdown, because a return number alone says nothing about the path taken to get there.
Real Examples: Same Fund, Different Returns
Start with Corporate Finance Institute's money-weighted example. A manager buys a stock for $100, collects $5 of dividends in each of three years, and sells at $150 at the end of year three. The IRR equation is 100 = 5/(1+r) + 5/(1+r)^2 + 155/(1+r)^3, which solves to roughly 18.88% a year.
Now their time-weighted example. A portfolio is tracked across four intervals with returns of 10.00%, 4.55%, 16.50% and -4.17%. Chain-linking gives (1.10) x (1.0455) x (1.1650) x (0.9583) - 1, which is about 28.40% for the year.
Finally, our own illustration, with made-up numbers for teaching only. You put $10,000 into a fund that gains 30% in year one. You then add $90,000, and the fund falls 10% in year two. The fund's time-weighted return is 1.30 x 0.90 - 1 = 17.0% over two years, about 8.17% a year. Your money-weighted return is different: you invested $100,000 in total and finished with $92,700, an annualised loss of about 6.68%.
Comparison of the three examples
When each measure is the right tool
The lesson from the third example is uncomfortable but useful. The fund was not the problem. The timing of the $90,000 deposit was. A strategy for stress-testing your plan with simulations can show how sensitive your own results are to when money goes in.
A practical way to use this knowledge is to run a yearly check. Pull your account's reported return, find out which method it uses, and then rebuild a money-weighted figure in a spreadsheet from your deposit history. If the two differ by more than a point or two, look at which deposits or withdrawals caused the gap. That exercise turns an abstract statistic into a concrete lesson about your own habits.
It also helps to separate luck from behaviour. A negative gap, where your money-weighted return beats the fund, may simply reflect a lucky deposit before a rally, which is not a repeatable skill. A positive gap that keeps showing up year after year is more telling, because it suggests a pattern such as adding money only after prices have risen.
Finally, remember that neither measure adjusts for risk. Two portfolios can share an identical return and still have very different swings along the way, so always read return figures next to a volatility or drawdown figure before you decide that one option is better than another.
Common Mistakes When Comparing Returns
Mistake 1: Comparing your account return to a fund factsheet
A factsheet shows a time-weighted figure. Your account may show a money-weighted one. Comparing them directly is comparing a thermometer to a bank statement. Always check which method your platform uses before drawing a conclusion.
Mistake 2: Using TWR to judge yourself
If you made large deposits at bad moments, TWR will flatter you. It reports what the fund did, not what you earned. When the question is whether your plan is working, use the money-weighted figure and be honest about the gap.
Mistake 3: Using MWR to judge a manager
A manager cannot control when clients deposit. Penalising them for a client who piled in at a peak is unfair, which is why professionals compare managers on time-weighted returns. The same logic applies when you compare active managers against a benchmark.
Mistake 4: Ignoring flows near big market moves
Both measures are sensitive to data quality. If a deposit is logged a week late, the interval boundaries shift and the answer changes. Use settlement dates and end-of-day valuations, and keep a simple log.
Mistake 5: Forgetting that order of returns matters for withdrawals
Retirees withdrawing money feel the gap most sharply. Two portfolios with identical time-weighted returns can leave very different balances depending on when losses land, a problem explained in our guide to sequence of returns risk.
Frequently Asked Questions
What is the difference between time-weighted and money-weighted return?
Time-weighted return removes the effect of your deposits and withdrawals, so it measures the investment. Money-weighted return includes them, so it measures your personal experience. They match only when there are no cash flows during the period.
Which is better, TWR or MWR?
Neither is better in general. Use TWR to compare managers and funds, and use MWR to judge your own results. Looking at both together is the most informative approach.
Is money-weighted return the same as IRR?
Yes. A money-weighted return is the internal rate of return of the cash flows you actually made, including the ending value as a final inflow.
Why is my account return different from the fund return?
Funds publish time-weighted figures, while many apps show a figure that reflects your cash flow timing. If you added money before a fall or withdrew before a rise, the two will diverge.
How do I calculate money-weighted return in a spreadsheet?
List each deposit as a negative number with its date, each withdrawal as a positive number, and the ending balance as a final positive number. Then apply the XIRR function to get an annualised rate.
What to Watch Next
- > Does your platform label its return as time-weighted or money-weighted in the settings or help page?
- > Is the gap between your MWR and the fund's TWR widening after large lump-sum deposits?
- > Do your annual statements use the same method year after year, so trends are comparable?
- > Are you comparing funds on net-of-fee time-weighted returns over the same dates?
Key Takeaways
- Time-weighted return is the thermometer: it measures the investment and ignores your cash flows.
- Money-weighted return is the bank statement: it measures what your own deposits and withdrawals earned.
- Fund factsheets use time-weighted figures, so they will rarely match your account.
- In our teaching example the same fund returned about 8.17% a year on a time-weighted basis and about -6.68% a year on a money-weighted basis.
- A small gap suggests steady investing, while a large gap signals that timing drove your result.
- Use TWR to pick managers, MWR to judge yourself, and both to understand the difference.
Remember the thermometer and the bank statement. Read the thermometer to choose a fund, then read the bank statement to see how you did. This article is educational and not personal financial advice.
Screenshot: chain-linking the four interval returns gives a 28.40% time-weighted return, captured 31 October 2026.