Money-weighted return

The single rate at which every contribution, withdrawal and the closing value balance - an IRR applied to a portfolio rather than to a deal.

Example

On -100,000, then -200,000 a year later, then 260,000 at the end, the rate is -10.26%.

Important

It measures your money, including when you added it. The same holdings with a contribution before the bad year rather than the good one swung this figure from -10.26% to +12.13% while the time-weighted return stayed at exactly 0.00%.

Related terms

• Time-weighted return — A return computed by cutting the period at every cash flow, measuring each segment separately and multiplying the segments together, so that the size and timing of contributions do not affect the answer.
• Internal rate of return (IRR) — The single annual rate at which every cash flow, positive and negative, discounts back to exactly zero - the r solving sum of CF_t/(1+r)^t = 0.
• Holding period — How long you keep an asset before selling it.

Lessons that explain it

• Time-weighted and money-weighted: two true answers — One measures the decisions about what to hold; the other measures what actually happened to your money, including when you added it. They can disagree enormously. (13 min)

All 578 terms in the Investing glossary