Dollar Weighted Rate of Return Calculator
Understand how the dollar weighted calculation methodology produces a rate-of-return that reflects your actual investment performance.
The value of your portfolio at the start of the period.
Please enter a valid initial value.
The total length of the investment period in months.
Duration must be at least 1 month.
Enter contributions as positive numbers and withdrawals as negative numbers.
The value of your portfolio at the end of the period.
Please enter a valid ending value.
Dollar-Weighted Rate of Return (Annualized)
0.00%
Also known as Internal Rate of Return (IRR)
Total Net Profit/Loss
$0.00
Net Capital Invested
$0.00
Total Period Return
0.00%
Portfolio Growth & Cash Flows
Cash Flow Schedule
| Month | Type | Amount | Cumulative Net Cash Flow |
|---|
What is the Dollar Weighted Rate of Return?
The dollar weighted calculation methodology produces a rate-of-return that equates the present value of your inflows (capital contributions) with the present value of your outflows (withdrawals and ending balance). In finance, this is formally known as the Dollar-Weighted Rate of Return (DWRR) or the Internal Rate of Return (IRR).
Unlike the Time-Weighted Rate of Return (TWRR), which isolates the skill of a fund manager by ignoring the size of cash flows, the dollar-weighted methodology specifically measures the performance of the investor. It answers the critical question: "What return did my actual dollars earn while they were invested?"
This metric is essential for individual investors who make regular deposits or withdrawals, as it accounts for the impact of timing. If you add a large sum of money right before a market crash, your dollar-weighted return will be significantly lower than the time-weighted return, reflecting your actual financial reality.
Formula and Mathematical Explanation
The core concept is to find a discount rate (r) that sets the Net Present Value (NPV) of all cash flows to zero. The formula assumes that the initial value is a cash outflow (investment) and the ending value is a cash inflow (redemption).
The fundamental equation is:
0 = -CF₀ + Σ [CFₜ / (1 + r)^(t/12)] + [FV / (1 + r)^(T/12)]
Where:
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| CF₀ | Initial Investment | Currency ($) | > 0 |
| CFₜ | Net Cash Flow at time t | Currency ($) | Any |
| FV | Final Value (Ending Balance) | Currency ($) | > 0 |
| r | Annualized Rate of Return | Percentage (%) | -100% to +100% |
| t | Time elapsed since start | Months | 1 to 360 |
Practical Examples
Example 1: The Impact of Poor Timing
Imagine an investor starts with $10,000. In Month 6, the market is booming, and they contribute another $50,000. By Month 12, the market corrects, and the portfolio finishes at $55,000.
- Initial: $10,000
- Month 6 Contribution: $50,000
- Ending Balance: $55,000
- Net Profit/Loss: $55,000 – ($10,000 + $50,000) = -$5,000
Even if the fund performance (TWRR) was flat or slightly positive for the year, the dollar weighted calculation methodology produces a rate-of-return that is negative because the majority of the capital ($50,000) was invested only during the decline.
Example 2: Systematic Investing (DCA)
An investor starts with $0 and contributes $1,000 every month for 12 months. The ending balance is $13,000.
- Total Invested: $12,000
- Ending Value: $13,000
- Gain: $1,000
Here, the DWRR will calculate the annualized effective yield on those monthly contributions, providing a true measure of the growth efficiency of the cash deployed.
How to Use This DWRR Calculator
- Enter Initial Value: Input the portfolio balance at the very beginning of your measurement period.
- Set Duration: Define how many months the period covers.
- Add Cash Flows: Click "Add Contribution/Withdrawal" for every time money moved in or out.
- Use positive numbers for deposits (money added).
- Use negative numbers for withdrawals (money removed).
- Enter Final Value: Input the portfolio balance at the end of the period.
- Review Results: The calculator solves for the annualized rate.
Key Factors That Affect DWRR Results
Several variables influence why the dollar weighted calculation methodology produces a rate-of-return that differs from other metrics:
- Magnitude of Cash Flows: Large contributions relative to the existing balance have a massive "weight." A 10% gain on $100,000 impacts the DWRR much more than a 10% gain on $1,000.
- Timing of Flows: Money invested right before a market rally boosts DWRR significantly. Money invested right before a crash hurts it severely.
- Market Volatility: High volatility combined with frequent cash flows creates the largest divergence between time-weighted and dollar-weighted returns.
- Investment Duration: Over very long periods without flows, DWRR and TWRR tend to converge. Short periods with heavy flows show the greatest variance.
- Fees and Costs: Since DWRR is based on net balances, it inherently accounts for all fees, commissions, and taxes paid out of the portfolio.
- External Transfers: Only transfers between the portfolio and the outside world count as flows. Dividends reinvested within the account are not cash flows; they are part of the investment growth.
Frequently Asked Questions (FAQ)
1. Why is my DWRR negative when the market went up?
This happens if you added a significant amount of money at a market peak. Even if the market index is up for the year, your specific dollars may have lost value after you deposited them. The dollar weighted calculation methodology produces a rate-of-return that captures this personal timing penalty.
2. How does this differ from CAGR?
CAGR (Compound Annual Growth Rate) only looks at the start and end values, assuming no money was added or removed. DWRR accounts for all the money moved in and out during the period.
3. Is a higher DWRR always better?
Generally yes, but be careful. A high DWRR over a short period might just be luck (buying right before a jump). Consistency over long periods is a better indicator of success.
4. Should I use DWRR or TWRR?
Use DWRR to evaluate your personal financial growth. Use TWRR to evaluate the skill of a fund manager or a specific investment strategy, independent of your deposit/withdrawal timing.
5. Can I calculate this for a single stock?
Yes. Treat the purchase price as the initial inflow and any subsequent purchases as contributions. Dividends withdrawn are withdrawals; dividends reinvested are ignored (they stay in the pot).
6. What if I have no cash flows?
If there are no contributions or withdrawals, the DWRR equals the CAGR and the TWRR. All three metrics converge.
7. What is the "Internal Rate of Return"?
IRR is the mathematical term for DWRR. In corporate finance, it's used for project budgeting; in personal finance, it's used for portfolio performance.
8. How accurate is this calculator?
This calculator uses an iterative numerical method to solve the IRR equation. It provides a high degree of precision for standard investment scenarios.
Related Tools and Internal Resources
Explore more tools to master your financial analysis:
- CAGR Calculator Calculate the simple compound annual growth rate without cash flows.
- Time-Weighted Return Calculator Compare your DWRR against TWRR to analyze timing efficiency.
- Investment Growth Projector Forecast future portfolio value based on fixed return assumptions.
- APY Calculator Understand annual percentage yields for savings accounts.
- Dividend Yield Analyzer Calculate returns specifically from dividend income streams.
- Inflation Adjusted Return Tool See how much purchasing power your returns are actually generating.
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document.getElementById("totalMonths").value = "";
document.getElementById("finalBalance").value = "";
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function calculateDWRR() {
hideErrors();
var isValid = true;
// Get Inputs
var initial = parseFloat(document.getElementById("initialBalance").value);
var months = parseInt(document.getElementById("totalMonths").value);
var finalVal = parseFloat(document.getElementById("finalBalance").value);
// Validation
if (isNaN(initial) || initial < 0) {
document.getElementById("err-initial").style.display = "block";
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if (isNaN(months) || months < 1) {
document.getElementById("err-months").style.display = "block";
isValid = false;
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if (isNaN(finalVal) || finalVal < 0) {
document.getElementById("err-final").style.display = "block";
isValid = false;
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if (!isValid) return;
// Collect Cash Flows
var flows = [];
// Initial investment is a negative flow at time 0
flows.push({ t: 0, amount: -initial });
var flowRows = document.getElementsByClassName("flow-row");
var netInvested = initial;
var totalDeposits = 0;
var totalWithdrawals = 0;
for (var i = 0; i 0 && m 0) {
netInvested += a;
totalDeposits += a;
} else {
netInvested += a; // reduces invested capital
totalWithdrawals += Math.abs(a);
}
}
}
// Final value is positive inflow (return of capital) at end time
flows.push({ t: months / 12, amount: finalVal });
// Solve IRR
var rate = solveIRR(flows);
// Display Results
document.getElementById("resultSection").style.display = "block";
if (rate === null) {
document.getElementById("resultDWRR").innerHTML = "Error";
document.getElementById("resultDWRR").style.color = "red";
alert("Could not calculate a result. Cash flows may be inconsistent or too extreme.");
return;
} else {
document.getElementById("resultDWRR").style.color = "var(–success-color)";
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var percentage = (rate * 100).toFixed(2);
document.getElementById("resultDWRR").innerHTML = percentage + "%";
// Stats
var profit = finalVal – netInvested;
document.getElementById("resultProfit").innerHTML = formatMoney(profit);
document.getElementById("resultInvested").innerHTML = formatMoney(netInvested);
var totalRet = 0;
if (netInvested !== 0) {
totalRet = (profit / netInvested) * 100;
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document.getElementById("resultTotalReturn").innerHTML = totalRet.toFixed(2) + "%";
// Render Table and Chart
updateTable(initial, finalVal, flows, months);
drawChart(initial, finalVal, flows, months);
}
// Newton-Raphson Solver for IRR
function solveIRR(flows) {
// flows = [{t: years, amount: value}, …]
// Function: f(r) = sum( amount / (1+r)^t )
// Derivative: f'(r) = sum( -t * amount / (1+r)^(t+1) )
var r = 0.1; // Initial guess 10%
var maxIter = 50;
var tolerance = 0.00001;
for (var i = 0; i < maxIter; i++) {
var npv = 0;
var d_npv = 0;
for (var j = 0; j < flows.length; j++) {
var t = flows[j].t;
var cf = flows[j].amount;
var discount = Math.pow(1 + r, t);
npv += cf / discount;
d_npv += (-t * cf) / (discount * (1 + r));
}
if (Math.abs(npv) 10) return null;
r = newR;
}
return null;
}
function formatMoney(num) {
var isNeg = num < 0;
var str = Math.abs(num).toFixed(2);
return (isNeg ? "-$" : "$") + str.replace(/\B(?=(\d{3})+(?!\d))/g, ",");
}
function updateTable(initial, final, flows, totalMonths) {
var tbody = document.querySelector("#scheduleTable tbody");
tbody.innerHTML = "";
// Sort flows by time just in case (though we added them mostly in order)
// Note: flows array contains inverted signs for solver. We need to invert back for display.
// Also flows contains t in years.
var displayFlows = [];
// Initial
displayFlows.push({ m: 0, type: "Initial Balance", amount: initial });
// User flows (filter middle items)
for(var i=1; i= 0 ? "Contribution" : "Withdrawal";
displayFlows.push({ m: m, type: type, amount: amt });
}
// Final
displayFlows.push({ m: totalMonths, type: "Ending Balance", amount: final });
// Sort by month
displayFlows.sort(function(a, b) { return a.m – b.m; });
var cumNet = 0;
for(var i=0; i<displayFlows.length; i++) {
var item = displayFlows[i];
// Logic for Cumulative Net Cash Flow (Pocket perspective)
// Initial (Out) + Contrib (Out) – Withdrawal (In)
// But usually users want to see "How much capital is in there?"
// Simple approach: Cumulative Net Invested.
if (item.type === "Initial Balance" || item.type === "Contribution") {
cumNet += item.amount;
} else if (item.type === "Withdrawal") {
cumNet += item.amount; // amount is negative
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// Ending balance doesn't affect "Net Cash Flow" into the pot
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