Accurately determine the performance of your investment portfolio by accounting for the timing and size of all cash flows.
The starting value of your portfolio (Day 0).
Please enter a valid positive number.
The current or final value of the portfolio.
Please enter a valid positive number.
Duration of the investment in years.
Please enter a valid duration (> 0).
Add deposits (positive) or withdrawals (negative) made during the period.
Money Weighted Return (Annualized)
0.00%
Calculated using the Internal Rate of Return (IRR) method based on cash flow timing.
Total Net Profit/Loss$0.00
Net Cash Flow (Invested)$0.00
Simple Return (Absolute)0.00%
Cash Flow Schedule
Time (Year)
Type
Amount ($)
Cumulative Invested ($)
Table 1: Detailed schedule of all cash flows used in the money weighted return calculation.
Portfolio Cash Flow Visualization
Figure 1: Visual representation of inflows (Blue) and outflows/value (Green) over time.
What is Money Weighted Return Calculation?
The money weighted return calculation (MWR) is a measure of the performance of an investment portfolio that accounts for the timing and magnitude of cash flows into and out of the portfolio. Unlike the Time-Weighted Return (TWR), which isolates the portfolio manager's performance by ignoring cash flow effects, the money weighted return reflects the actual return earned by the investor on their specific capital.
This metric is essentially the Internal Rate of Return (IRR) of the portfolio. It is particularly useful for individual investors who control when they contribute or withdraw funds. If you add money to your portfolio right before a market rally, your money weighted return calculation will be higher than the time-weighted return. Conversely, adding money before a crash will lower your MWR.
Who should use it? Individual investors, financial planners assessing personal performance, and anyone needing to understand how their deposit/withdrawal timing has impacted their total wealth generation.
Money Weighted Return Calculation Formula
The formula for money weighted return calculation is derived from the concept of Net Present Value (NPV). The MWR is the discount rate ($r$) that sets the net present value of all cash flows and the final ending value to zero.
Because $r$ is an exponent in the denominator, there is no simple algebraic solution. The calculation requires numerical methods (like the Newton-Raphson algorithm used in the calculator above) to solve for $r$ iteratively.
Practical Examples
Example 1: The Lucky Timer
Investor A starts with $10,000. After 1 year, the market is flat, and the value is still $10,000. They deposit another $10,000. In Year 2, the market doubles.
T=0: -$10,000 (Initial)
T=1: -$10,000 (Deposit)
T=2: Ending Value is $40,000 ($20k invested x 2).
The money weighted return calculation would be significantly high because the bulk of the capital ($20,000 total) participated in the doubling event.
Example 2: The Unlucky Timer
Investor B starts with $10,000. In Year 1, the market doubles (Value $20,000). They get excited and deposit $100,000. In Year 2, the market drops 50%.
T=0: -$10,000
T=1: -$100,000
T=2: Ending Value is roughly $60,000.
Even though the fund manager might claim a 0% Time-Weighted Return (up 100%, then down 50%), the investor has lost a massive amount of money relative to their investment. The money weighted return calculation will be negative, accurately reflecting the personal loss.
How to Use This Calculator
Enter Initial Investment: Input the amount you started with at the beginning of the period.
Enter Ending Value: Input the current value of the portfolio or the value at the end of the period.
Set Time Period: Define the total duration in years (e.g., 5.5 for 5 and a half years).
Add Cash Flows: Click "Add Cash Flow" for every deposit or withdrawal made.
Enter the Amount (Positive for deposits you added, Negative for withdrawals you took out).
Enter the Month the transaction occurred (e.g., Month 6).
Calculate: Press the green button to see your personalized return rate.
Key Factors That Affect Results
Several variables influence the outcome of a money weighted return calculation:
Timing of Cash Flows: Money added just before a period of high returns increases MWR. Money added before a decline decreases it.
Magnitude of Flows: Large deposits or withdrawals have a "weighting" effect. A large deposit dilutes the impact of previous returns on the overall percentage.
Market Volatility: High volatility combined with frequent cash flows creates the largest divergence between Time-Weighted and Money-Weighted returns.
Duration: Over very long periods, the specific timing of early cash flows matters less than the compounding rate, but in the short term, timing is critical.
Fees and Taxes: If cash flows are entered net of fees, the MWR reflects net performance. If gross, it reflects gross performance.
Ending Valuation: A temporary spike or dip in the ending value on the specific calculation date can significantly skew the annualized return.
Frequently Asked Questions (FAQ)
What is the difference between MWR and TWR?
Time-Weighted Return (TWR) eliminates the effect of cash flows to measure the manager's skill. Money Weighted Return (MWR) includes cash flows to measure the investor's actual experience.
Can MWR be negative while TWR is positive?
Yes. If you deposit a large sum of money right before a market crash, your personal MWR could be negative even if the fund had a positive performance earlier in the year (positive TWR).
Why is the result different from my brokerage statement?
Brokerages often use TWR by default to compare against benchmarks. Your money weighted return calculation is specific to your unique deposit/withdrawal history.
How do I handle dividends?
If dividends are reinvested, ignore them (they are internal to the portfolio). If you withdraw dividends as cash, treat them as a negative cash flow (withdrawal).
Is a higher MWR always better?
Generally yes, as it means your money grew efficiently. However, a high MWR might just mean you got lucky with timing, rather than holding a superior investment strategy.
Does this calculator handle irregular dates?
This tool approximates timing based on months or years. For daily precision, professional accounting software is required, but this tool provides a highly accurate estimate for personal finance.
What is a "good" money weighted return?
A "good" return depends on your risk profile and asset class. Historically, 7-10% is considered good for equities over the long term.
Why does the calculator say "Calculation Error"?
If cash flows are erratic or the return is extremely negative (e.g., -100%), the mathematical solver may not converge. Ensure your inputs are realistic.
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