Money-Weighted Return Explained
Money-weighted return (MWR) is the single annual rate that makes the value of all your deposits and withdrawals, grown at that rate, equal the portfolio's ending value. It's an internal rate of return (IRR). Unlike time-weighted return, it reflects when you added or removed money, so it describes your personal experience rather than the investments' performance.
At a glance
- Also called
- Internal rate of return (IRR), dollar-weighted return
- Reflects
- The size and timing of your deposits and withdrawals
- Use it for
- Your personal result; investments where you control the timing
- Contrast
- Time-weighted return removes timing effects
What is the difference between money-weighted and time-weighted return?
Time-weighted return measures how the investments performed; money-weighted return measures how you did, including the effect of when you put money in or took it out. The two differ whenever there are cash flows and returns vary over time.
Worked example
Same portfolio as in our time-weighted return example: $10,000 invested on 1 January, $5,000 added on 1 July, worth $15,200 on 31 December. MWR is the rate r that solves:
10,000 × (1 + r) + 5,000 × (1 + r)0.5 = 15,200
Solving numerically gives r ≈ 1.60%.
| Measure | Result | What it tells you |
|---|---|---|
| Time-weighted return | 4.50% | The investments gained 10% then lost 5% |
| Money-weighted return | ≈ 1.60% | The investor added $5,000 just before the 5% fall, so more money experienced the loss |
Neither number is wrong. They answer different questions.
When to use each
| Question | Use |
|---|---|
| How did this fund or manager perform? | Time-weighted |
| How does my portfolio compare with a benchmark? | Time-weighted |
| What return did I actually earn on my money? | Money-weighted |
| Investments where the manager controls cash-flow timing (e.g. private equity) | Money-weighted |
Limitations
- MWR has no closed-form solution with multiple cash flows. It's solved numerically.
- With unusual cash-flow patterns there can be more than one solution.
- It can't fairly compare managers, because investors, not managers, usually decide deposit timing.
Frequently asked questions
Is MWR the same as XIRR?
XIRR is a spreadsheet function that calculates an internal rate of return for irregularly dated cash flows, a common way to compute money-weighted return.
Why is my tracker's return different from my broker's?
They may use different methods: one time-weighted, the other money-weighted. Check which each one shows.
Sources
- GIPS Standards (CFA Institute) — global standards for calculating and presenting investment performance