Calculate the Dollar Weighted Average Performance
Use this professional calculator to calculate the dollar weighted average return, see intermediate money-weighted insights, and understand how contributions and withdrawals shape your performance.
Dollar Weighted Average: 0.00%
Total contributions: 0
Average dollars invested: 0
Final balance: 0
Formula: Sum(weighted returns) ÷ Sum(average invested dollars) across all periods.
| Period | Start Balance | Cash Flow | Return % | End Balance | Average Balance | Weighted Return |
|---|
What is calculate the dollar weighted average?
Calculate the dollar weighted average is the process of finding a money-weighted rate of return that gives more influence to periods where more capital was invested. Investors who want their performance to reflect real cash flow timing need to calculate the dollar weighted average rather than a simple time-weighted number.
Calculate the dollar weighted average matters for anyone with irregular deposits, periodic withdrawals, private equity capital calls, or tactical rebalancing. Portfolio managers, financial planners, and individual investors all calculate the dollar weighted average to see how real decisions impacted their bottom line.
A common misconception is that you calculate the dollar weighted average with the same logic as time-weighted returns. In reality, to calculate the dollar weighted average you must tie each return to the dollars at work in that exact period.
{related_keywords}Calculate the Dollar Weighted Average Formula and Mathematical Explanation
To calculate the dollar weighted average, compute the weighted sum of each period's return using the average invested dollars for that period, then divide by the total average dollars. This ensures that periods with higher balances matter more when you calculate the dollar weighted average.
Step-by-step to calculate the dollar weighted average:
- Record starting value and each period's cash flow at the start.
- Apply the period return to find the end balance.
- Find average balance = (start + end)/2 for each period.
- Multiply average balance by the period return to get weighted return.
- Sum all weighted returns and divide by the sum of average balances to calculate the dollar weighted average.
| Variable | Meaning | Unit | Typical range |
|---|---|---|---|
| BV | Beginning value for the period | currency | 1,000 to 100,000,000 |
| CF | Cash flow at period start | currency | -1,000,000 to 1,000,000 |
| r | Period return | percent | -20% to 30% |
| EV | Ending value for the period | currency | 1,000 to 100,000,000 |
| AB | Average balance (BV+EV)/2 | currency | 1,000 to 100,000,000 |
| W | Weighted return AB*r | currency | -20,000,000 to 20,000,000 |
Practical Examples (Real-World Use Cases)
Example 1: Growth with steady contributions
Suppose you calculate the dollar weighted average for an investor who begins with 50,000, adds 2,000 for four months, and earns returns of 1.5%, 2.1%, -0.5%, and 1.2%. Using the calculator to calculate the dollar weighted average shows a weighted return of about 1.58% per period because the larger balances later in the timeline carry more weight.
Example 2: Withdrawals during volatility
Another case to calculate the dollar weighted average is a retiree starting with 400,000, withdrawing 5,000 monthly, and facing mixed returns of 0.8%, -3.0%, 2.4%, and 1.1%. When you calculate the dollar weighted average, the negative month after a withdrawal has less impact because fewer dollars were exposed, giving a more realistic performance number.
{related_keywords}How to Use This calculate the dollar weighted average Calculator
Enter your starting value, cash flows per period, and matching period returns. Choose the period length, then the tool will automatically calculate the dollar weighted average and display intermediate totals. Read the table to see how each period contributes to the weighted outcome.
When you calculate the dollar weighted average, watch the average balance column: higher averages magnify the impact of that period's return. The chart visualizes how average balances compare with cumulative contributions as you calculate the dollar weighted average.
{related_keywords}Key Factors That Affect calculate the dollar weighted average Results
- Timing of contributions: Adding funds before strong months raises the weighted return when you calculate the dollar weighted average.
- Timing of withdrawals: Pulling cash out before weak months shields capital, improving the calculated dollar weighted average.
- Return volatility: Larger swings matter more in periods with higher balances when you calculate the dollar weighted average.
- Fees and expenses: Costs reduce end balances, lowering average balances and the final calculate the dollar weighted average.
- Holding period length: More periods create more averaging points, smoothing the calculate the dollar weighted average over time.
- Tax impacts: Taxes reduce effective returns, which you must reflect to accurately calculate the dollar weighted average.
- Rebalancing decisions: Adjusting allocation can change exposure in each period and influence how you calculate the dollar weighted average.
Frequently Asked Questions (FAQ)
- Is calculate the dollar weighted average the same as IRR?
- They are related; IRR solves for a single rate across cash flows, while calculate the dollar weighted average here weights each observed period return by invested dollars.
- How many periods can I use to calculate the dollar weighted average?
- You can input as many comma-separated periods as needed; just align cash flows and returns to calculate the dollar weighted average properly.
- What if my cash flow list length differs from returns?
- Adjust them to match; mismatches make it impossible to calculate the dollar weighted average accurately.
- Can I include withdrawals?
- Yes, enter negative numbers to calculate the dollar weighted average with withdrawals considered.
- Does the order of cash flows matter?
- Yes, timing changes average balances, so order directly impacts how you calculate the dollar weighted average.
- Why do I see a lower number than my time-weighted return?
- Because calculate the dollar weighted average penalizes poor returns during high-balance periods.
- Can I use quarterly or annual periods?
- Yes, set the period length to match your data when you calculate the dollar weighted average.
- How does the final adjustment field work?
- It adds a closing cash flow after the last return so you can calculate the dollar weighted average including ending fees or contributions.