TWRTime-Weighted Return
Definition
TWR is a time-weighted rate of return: it measures the investments alone, without the effect of deposits and withdrawals. It is the standard for benchmarking.
The time-weighted return (TWR) measures how the investments themselves performed, without giving extra weight to periods when you happened to have more money in the portfolio. Investment funds report their results this way, which makes TWR the right measure for comparing a portfolio with an index.
How TWR is calculated
Time is split into periods at every deposit or withdrawal. The return of each period is measured, and the returns are then chained by compounding (multiplying), not by adding:
Example: a great result on a small amount
From January to June, 1,000 grows to 1,500 (+50%). You then add 100,000, and from July to December the market falls 10%: 101,500 turns into 91,350. You actually lose 9,650 and MWR is about −18%. TWR, however, is +35%, because 1.50 × 0.90 − 1 = 0.35.
Both numbers are true. TWR rates the portfolio: it is what you would have earned by investing 1,000 and adding nothing. MWR and the money gain rate your experience as an investor, including the timing of deposits.
TWR removes the mechanical effect of deposits and withdrawals, not the effect of your decisions: asset selection, buys and sells still shape the result. When comparing TWR with an index, use the same currency and the same period.
TWR in FundStat
Pick Portfolio performance (TWR) on the return card. The same measure powers the Compare page, where you set your portfolio against indices.
Related terms
All terms- MWRMWR is a money-weighted rate of return: it accounts for the amount and date of every deposit and withdrawal, showing how fast the investor’s money grew.
- MWR vs TWRMWR measures the investor’s result including the timing of deposits; TWR measures the portfolio alone. One portfolio can have a positive TWR and negative MWR.
- Portfolio benchmarkA portfolio benchmark is a reference point, usually an index such as the S&P 500 or WIG20TR, that you compare your investment results with to see if you are beating it.
- CAGRCAGR is the compound annual growth rate: the constant yearly rate that turns a starting value into an ending value over a period. It ignores deposits and withdrawals.