Time-Weighted Return (TWR)
Measures portfolio performance independent of cash flows. Best for comparing manager performance.
What it means
Time-Weighted Return (TWR) measures portfolio performance by eliminating the impact of cash flows (deposits and withdrawals). It shows how $1 invested at the beginning would have grown, regardless of when money was added or removed. This is the standard for comparing investment manager performance.
The math
Divide the period into sub-periods around each cash flow. Calculate holding period return (HPR) for each sub-period. Geometrically link them together.
How to read it
- TWRShows manager skill - not affected by client timing decisions
- MWRShows actual investor experience - affected by timing
Worked example
An investor adds $50,000 right before the market drops 20%, then it recovers. Their MWR would be worse than TWR because they had more money invested during the decline. TWR isolates manager performance from this timing.
In context
TWR is the industry standard because it measures what the manager can control—investment decisions—not what they can't control—client cash flows. It enables fair comparison between managers.
Keep exploring
Money-Weighted Return (MWR)
Measures actual investor return including the timing and size of cash flows. Shows your personal performance.
Annualized Return
The geometric average return per year, allowing comparison of returns over different time periods.
Total Return
The complete return on an investment including price appreciation and income (dividends, interest).
Risk-Adjusted Return
Return measured relative to the risk taken. Allows fair comparison between investments with different risk levels.
Benchmark
A standard (like S&P 500) used to measure portfolio performance. Enables apples-to-apples comparison.
Articles
See Time-Weighted Return (TWR) in action
Portfolio Genius calculates time-weighted return (twr) and other key metrics automatically for your portfolio. Get AI-powered insights in seconds.