Time-Weighted vs Money-Weighted Return (TWR vs MWRR)

Two portfolios can hold the same assets, in the same order, and still report different returns. The reason is not the assets. It is the maths, and specifically how each method treats the money you add and take out. This guide explains the two main return measures, gives you the formulas and worked examples, and lets you calculate both on your own numbers.

TL;DR

Time-weighted return (TWR) measures the strategy. Money-weighted return (MWRR), also called the dollar-weighted return or the IRR, measures the investor. TWR strips out the effect of deposits and withdrawals, so it is used to judge a manager. MWRR includes them, so it tells you what you actually earned. When there are no cash flows in or out, the two are the same. When there are, they diverge, and the gap is the timing of your money.

Time-weighted vs money-weighted return at a glance

In one line: TWR asks how the portfolio performed, MWRR asks how you performed. The table sets them side by side.

What is time-weighted return (TWR)?

Time-weighted return is the compound growth of a portfolio with the effect of deposits and withdrawals taken out. It cuts the period into sub-periods at each cash flow, measures the return of each, and links them together. Because it treats every sub-period equally, it shows how the portfolio itself did, not how much the owner earned.

TWR meaning

When people write "TWR" or ask what "t w r" means, this is it: the time-weighted rate of return. The point of the method is fairness. A manager should not look good just because a client happened to add money before a rally, or look bad because a client withdrew before one. Strip the flows out and you are left with the manager's actual work.

Why TWR is the standard for judging managers

Under the GIPS standards, time-weighted return is the default way to report and compare performance. The logic is simple: a client controls when they pay in and take out, so the manager should be measured on the part they do control, the investment decisions. That is why almost every fund factsheet and manager track record you see is time-weighted.

Time-weighted return formula

The TWR formula links each sub-period's return by multiplying them together.

How do you calculate TWR step by step?

Three steps: cut the period at every cash flow, work out the return for each piece, then multiply the pieces together.

1. Cut the period at each cash flow. Every deposit or withdrawal ends one sub-period and starts the next. Two flows in a year gives you three sub-periods.
2. Work out each sub-period's return. Value the portfolio immediately before the flow. The return is the closing value divided by the opening value, minus 1.
3. Link them. Add 1 to each sub-period return, multiply them together, then subtract 1. This is called geometric linking.

The valuation date is the part that trips people up. You need the portfolio value immediately before the money moves, not at month end. Get that date wrong and every sub-period after it is wrong too.

A worked example

Say a portfolio starts the year at $100M. By mid-year it has fallen to $80M, a 20% drop. The family then adds $20M, taking it to $100M. Over the second half it rises to $130M. To get the TWR, value the portfolio just before the cash flow, work out each half, and link them.

TWR = (1 - 0.20) × (1 + 0.30) - 1 = 4.00%.

Why cash flows do not change TWR

Notice the $20M contribution never enters the return maths. It only resets the opening balance of the next sub-period. That is the whole idea: the size of the deposit cannot flatter or hurt the manager's number. The net asset value at each cash-flow date is what drives TWR, which is why accurate, timely valuations matter so much.

Annualising TWR

If your sub-periods add up to more or less than a year, annualise the linked figure: annual TWR = (1 + TWR)^(1 / years) - 1. For a period of exactly one year, no adjustment is needed.

What is money-weighted return (MWRR)?

Money-weighted return is the single rate that makes the value of every cash flow, including the ending value, net to zero. It reflects how much you actually earned. Unlike TWR, it gives more weight to the periods when more of your money was at work. It has two other names you will meet often: in the US it is the dollar-weighted return, and mathematically it is the internal rate of return (IRR).

Take the same example. The family put in $100M, then added $20M right after the market had fallen, then finished at $130M. Because more money was invested during the strong second half, the return they actually earned is higher than the manager's time-weighted 4.00%. That real, money-weighted figure works out at 9.08%.

Money-weighted return formula

The MWRR is the rate r that solves the equation below. It is the same rate the IRR and XIRR functions find.

For the example, the flows are: $100M out at the start, $20M out at mid-year, and $130M back at year end. Solving for r gives 9.08%. If your cash flows span more or less than a year, the dates do the work: because the formula discounts by the actual time each flow is invested, a period shorter or longer than a year is handled automatically.

How do you calculate money-weighted return in Excel?

Use XIRR. Put every cash flow in one column and its date in the next, then call =XIRR(values, dates).

Sign the flows from the investor's point of view. Money going into the portfolio is negative, money coming back is positive, and the closing value counts as a positive flow on the final date.

For the example above that is three rows:

=XIRR(values, dates) returns 9.08%, the money-weighted return quoted earlier.

Two things to watch. XIRR counts the actual days between flows rather than clean half-years, so the exact dates matter. Run the same three flows as tidy half-years instead and you get 9.11%, because 2024 is a leap year and the closing value is discounted over 366 days rather than 365. And XIRR needs at least one negative and one positive flow, otherwise it returns an error.

What is the difference between IRR and XIRR?

IRR assumes your cash flows are evenly spaced. XIRR uses the real dates. For a portfolio, XIRR is almost always the right one.

Cash flows in a family office do not arrive on a tidy schedule. A capital call in March and a distribution in November are seven months apart, not "two periods". IRR would treat them as evenly spaced and give you the wrong number. XIRR takes the dates and discounts each flow by the time it was actually invested.

Use IRR only when the flows genuinely are regular, such as a fixed quarterly schedule.

How do you annualise a money-weighted return?

If you used XIRR, it is already annualised. If you solved the formula over a period other than a year, convert it with: annual MWRR = (1 + MWRR)^(1 / years) - 1.

This is the same adjustment as for TWR. XIRR is the exception because it works in dates and returns an annual rate by default, so annualising it a second time would count the time twice.

TWR vs MWRR: why the two numbers differ

They differ whenever money moves in or out and returns are uneven, because MWRR weights the periods by how much money was invested. Add capital just before a good stretch and your money-weighted return beats the time-weighted one, as in the example. Add it just before a bad stretch and it falls below. The size of the gap is a measure of your cash-flow timing, good or bad.

When are they equal? When there are no external cash flows in the period. With nothing going in or out, there is no timing for MWRR to reward or punish, so the two returns match, give or take small day-count effects.

Calculate TWR and MWRR yourself

Now try it on your own figures. Enter your opening value, any cash flows, and the closing value, and the calculator links the sub-periods for TWR and solves the XIRR for MWRR, showing both side by side. It starts pre-loaded with the worked example above, so you can see the 4.00% and 9.08% before you change a thing.

TWR vs IRR, and how MWRR relates to IRR

The money-weighted return is the IRR. So "TWR vs IRR" is the same comparison as "TWR vs MWRR", dressed in different words. People reach for "IRR" most often in private markets, where a fund manager, not the investor, decides when capital is called and when distributions are paid.

That control is the key. In a liquid portfolio the client controls the flows, so you judge the manager with TWR. In a private-equity or drawdown fund the manager controls the flows, so the manager's own timing is fair to include, and the standard measure becomes the IRR, which is the money-weighted return. This is why private-market reporting leans on IRR, and why it is usually read alongside a multiple like MOIC, which shows how many times the money came back but ignores time.

The GIPS standards follow the same logic: time-weighted return by default, and the money-weighted return where the firm controls the timing of external cash flows, as in closed-end private funds.

Which should you use?

Use TWR to judge a manager. Use MWRR to know your own return, or to judge a fund whose manager controls the cash flows. They answer different questions, and a serious investor wants both:

• TWR tells you whether your manager or strategy is any good, on a like-for-like basis with peers and benchmarks.
• MWRR tells you what your capital actually earned, timing and all, and is the right lens for private funds.

Reporting only one hides half the picture. A manager can post a strong TWR while the family's money-weighted return lags, simply because of when cash went in. Show both and there is nowhere for that gap to hide.

Can a strong TWR hide a poor result for the family?

Yes, and it is the most common reason the two numbers argue with each other. TWR judges the manager, and it deliberately ignores when money arrived. So a manager can report a good year while the family's own return is worse, purely because capital landed just before a fall.

The example on this page runs the other way. The family added $20M after the drop, so their money-weighted return beat the manager's 4.00%. Reverse the timing and the gap reverses with it.

Neither number is wrong. They answer different questions. The problem is only when a report shows one of them and calls it "the return". Show both, and the gap between them becomes a useful fact in its own right, because it tells you what the family's own timing decisions earned or cost.

How family offices calculate TWR and MWRR across custodians

The hard part is not the formula. It is getting clean valuations and a complete, dated record of every cash flow, across every account and custodian. TWR needs the portfolio value at each flow date. MWRR needs every flow, correctly signed and dated. Do that by hand across a dozen banks and several currencies and it becomes a monthly spreadsheet marathon, and one late valuation throws the whole number off.

This is the job Asora is built for. It aggregates every account, entity and custodian, tracks each cash flow as it happens, and calculates time-weighted and money-weighted returns across the whole structure automatically, no sub-period spreadsheets or manual XIRR. The family sees the manager's number and their own number, side by side, on one reporting layer.

Sources

• CFA Institute, Global Investment Performance Standards (GIPS): time-weighted return as the default, and money-weighted return (defined as an IRR) where the firm controls the timing of external cash flows.

FAQ

What is time-weighted return (TWR)?

Time-weighted return is the compound growth rate of a portfolio that strips out the effect of money going in and out. It breaks the period into sub-periods at each cash flow, works out the return for each, and links them together. Because it ignores the size and timing of deposits and withdrawals, it measures how the manager or strategy performed, not how much the investor happened to earn.

What does TWR mean?

TWR stands for time-weighted return, sometimes called the time-weighted rate of return. It answers the question: how did the portfolio itself perform, regardless of when the owner added or took out cash? It is the industry standard for comparing investment managers, because a manager should not be judged on deposits and withdrawals they do not control.

What is the time-weighted return formula?

TWR = [(1 + r1) x (1 + r2) x ... x (1 + rn)] - 1, where each r is the return of one sub-period between cash flows. You value the portfolio just before each cash flow, work out each sub-period's return, add 1 to each, multiply them together, and subtract 1. This is called geometric linking.

What is money-weighted return (MWRR)?

Money-weighted return is the single rate that sets the present value of every cash flow, including the final value, to zero. It reflects how much you actually earned, because it gives more weight to periods when more of your money was invested. It is the same thing as the internal rate of return (IRR), and in the US it is also called the dollar-weighted return.

Is money-weighted return the same as dollar-weighted return?

Yes. Money-weighted return and dollar-weighted return are two names for the same measure. Both describe the return that accounts for the size and timing of your cash flows, and both equal the internal rate of return of those cash flows. The US market tends to say dollar-weighted; the CFA and GIPS literature says money-weighted.

Is MWRR the same as IRR?

Yes. The money-weighted rate of return is the internal rate of return (IRR) of a portfolio's cash flows. GIPS defines the money-weighted return as an IRR. In private equity, where people usually say IRR, they are quoting the same money-weighted number.

What is the difference between TWR and IRR?

TWR removes the effect of cash-flow timing and measures the strategy; IRR, which is the money-weighted return, includes cash-flow timing and measures the investor's actual outcome. Use TWR to compare managers of liquid portfolios, where the client controls deposits and withdrawals. Use IRR for private-market funds, where the manager controls the timing of capital calls and distributions.

Why do TWR and MWRR give different numbers?

They differ whenever money moves in or out and the portfolio's return is uneven. TWR treats every period equally. MWRR gives more weight to periods when more money was invested. So if you add capital just before a strong run, your money-weighted return beats your time-weighted return; add it just before a fall and it is the other way round.

When are TWR and MWRR equal?

When there are no external cash flows during the period. With no deposits or withdrawals, there is nothing for timing to affect, so the time-weighted and money-weighted returns are the same, give or take small day-count differences.

Which return does GIPS require, and which should I use?

Under the GIPS standards, time-weighted return is the default for reporting composite performance, so managers can be compared fairly. GIPS allows or requires the money-weighted return when the firm controls the timing of external cash flows, as in private equity and other closed-end funds. In practice, a family office reports both: TWR to judge managers, and MWRR to know what the family actually earned.