Time-Weighted Return (TWR) Calculator

Measure the compound growth rate of a portfolio by eliminating the distorting effects of external cash deposits or withdrawals. Ideal for evaluating investment manager performance.

Understanding Time-Weighted Return (TWR)

The Time-Weighted Return (TWR) measures the compound growth rate in a portfolio. It is the industry standard for reporting investment performance because it breaks the evaluation period into sub-periods based on the timing of cash deposits and withdrawals, thereby eliminating the influence of external cash additions.

TWR vs. MWR (Internal Rate of Return)

While **Money-Weighted Return (MWR / IRR)** is heavily influenced by *when* and *how much* money is deposited (rewarding investors who deposit right before market rises), **TWR** reflects purely the underlying quality of the asset selection and management. TWR evaluates the manager, whereas MWR evaluates the absolute dollar growth of the client.

The Mathematical Formula

Step 1: Calculate the Holding Period Return (HPR) for each sub-period:

Step 2: Compound all sub-period yields:

Where:

• Starting Value = Portfolio worth at the start of the sub-period.
• Cash Flow = Any deposit (positive) or withdrawal (negative) made at the beginning of the sub-period.
• Ending Value = Portfolio worth at the end of the sub-period, immediately before the next cash flow.