Time Weighted Rate of Return Calculator

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What is Time-Weighted Rate of Return (TWRR)?

The Time-Weighted Rate of Return (TWRR) is a method used to measure investment performance that eliminates the distorting effects of cash inflows and outflows. It is particularly useful for comparing the performance of investment managers or strategies over time, as it reflects how well the underlying assets have performed, independent of when money was added or withdrawn.

Why is TWRR Important?

Unlike money-weighted rates of return (which are influenced by the timing and size of cash flows), TWRR provides a more accurate picture of the investment's actual growth. This makes it the standard for performance measurement in the investment industry, allowing for fair comparisons between different investment periods and managers.

How is TWRR Calculated?

The TWRR is calculated by dividing the total period into sub-periods based on the dates of cash flows. The rate of return for each sub-period is calculated, and then these returns are geometrically linked to find the overall TWRR for the entire period.

The formula for each sub-period return (R) is:

R = (Ending Market Value – Beginning Market Value – Cash Flows During Period) / (Beginning Market Value + Cash Flows During Period)

Or, more commonly, if cash flows are assumed to occur at the end of the period:

R = (Ending Market Value – Beginning Market Value) / Beginning Market Value

The total TWRR is then the product of (1 + R) for each sub-period, minus 1:

TWRR = [(1 + R1) * (1 + R2) * … * (1 + Rn)] – 1

Time-Weighted Rate of Return Calculator

This calculator helps you compute the TWRR for an investment. You'll need to input the beginning value, ending value, and any cash flows for distinct periods. For simplicity, this calculator assumes a single period, but the principles can be extended to multiple periods.

.calculator-container { font-family: sans-serif; display: flex; flex-wrap: wrap; gap: 20px; margin-top: 20px; } .article-content { flex: 1; min-width: 300px; } .calculator-form { flex: 1; min-width: 300px; border: 1px solid #ccc; padding: 20px; border-radius: 8px; } .calculator-form label { display: block; margin-bottom: 8px; font-weight: bold; } .calculator-form input[type="number"] { width: calc(100% – 20px); padding: 10px; margin-bottom: 15px; border: 1px solid #ccc; border-radius: 4px; } .calculator-form button { background-color: #007bff; color: white; padding: 10px 15px; border: none; border-radius: 4px; cursor: pointer; font-size: 16px; } .calculator-form button:hover { background-color: #0056b3; } #result { margin-top: 20px; font-weight: bold; font-size: 1.1em; color: #333; } function calculateTWRR() { var beginningValue = parseFloat(document.getElementById("beginningValue").value); var endingValue = parseFloat(document.getElementById("endingValue").value); var cashFlow = parseFloat(document.getElementById("cashFlow").value); var resultDiv = document.getElementById("result"); if (isNaN(beginningValue) || isNaN(endingValue) || isNaN(cashFlow)) { resultDiv.innerHTML = "Please enter valid numbers for all fields."; return; } if (beginningValue <= 0) { resultDiv.innerHTML = "Beginning Market Value must be greater than zero."; return; } // Calculation for a single period, assuming cash flow occurs at the end of the period for simplicity. // A more precise TWRR calculation involves breaking down periods by cash flow dates. // For this simplified calculator, we'll use the formula adjusted for cash flow. var subPeriodReturn = (endingValue – beginningValue – cashFlow) / (beginningValue + cashFlow); var twrr = subPeriodReturn; // For a single period, TWRR is the sub-period return. // Formatting the result var formattedTWRR = (twrr * 100).toFixed(2) + "%"; resultDiv.innerHTML = "Time-Weighted Rate of Return (TWRR): " + formattedTWRR; }

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