Measuring performance
Money-weighted return
Also called MWR, IRR, Internal rate of return or Dollar-weighted return
The return your actual money earned, counting when each contribution and withdrawal happened.
How it works
MWR is the discount rate that makes all your cash flows and your final value balance. It reflects the size and timing of every deposit, which means it captures your own timing decisions.
It is the right number for answering "how did I do", where TWR answers "how did the investments do".
Where it misleads people
A large contribution just before a rise inflates MWR without any skill being involved. It is your outcome, not evidence of judgement, and comparing it to a benchmark is comparing different things.
Guide
Related terms
- Time-weighted returnA return that strips out the effect of money you added or withdrew, so it measures the investments alone.
- Behaviour gapThe difference between what a fund returned and what its investors actually earned in it.
- CAGRThe steady yearly rate that would have turned your starting value into your ending value.
- ReturnWhat an investment gained or lost over a period, as a percentage of what it was worth at the start.
Mentioned in
More in Measuring performance
- Nominal return
- Mark to market
- Out-of-sample testing
- Look-ahead bias
- Overfitting
- Information ratio
- Performance attribution
- Equity risk premium
All 29 Measuring performance terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.