TWR vs MWR Comparison Calculator

What the TWR vs MWR calculator does

You enter the time-weighted return (TWR) and the money-weighted return (MWR) of the same portfolio over the same period, and the calculator subtracts one from the other to give what is often called the behaviour gap: how much your timing of contributions and withdrawals helped or hurt, separate from the investment's own performance.

TWR shows how good the investment was; MWR shows how well you did. Confusing them is a common mistake when judging results, and side by side they split the outcome into its two causes.

Time-weighted return

Time-weighted return measures the compound growth of one unit of money left in the investment for the whole period, regardless of cash added or removed. It splits the timeline into sub-periods around each cash flow, calculates each sub-period's return, and chains them, which removes the influence of deposit and withdrawal timing.

A manager cannot control when you invest more or cash out, so TWR is the fair way to compare funds, managers, or strategies. Published performance figures, benchmark comparisons, and league tables are almost always time-weighted; a fund that "returned 12% last year" is quoting a time-weighted figure.

Money-weighted return

Money-weighted return is the single rate that reconciles all your cash flows with your ending balance, the definition of an internal rate of return. It weights each period by how much money you had invested, so a period with a large balance counts far more than one with almost nothing.

If you invested heavily just before a strong run, your MWR will be high, possibly well above the fund's TWR. If you put money in just before a slump, or sold near the bottom and missed the recovery, your MWR will trail the TWR badly even though the underlying investment did fine. MWR is the return your actual money earned.

Reading the behaviour gap

• A positive gap means TWR is higher than MWR: the investment outperformed your personal result, and your timing cost you. This is the common case and the origin of the term; studies of real investors repeatedly find that average money-weighted returns lag the time-weighted returns of the funds people hold, because many buy after gains and sell after losses.
• A negative gap means MWR is higher than TWR: you contributed more before gains or held back before losses, and your money did better than buy-and-hold would suggest.
• A gap near zero means your cash flows had little net effect, typical of steady, regular contributions that neither chase nor flee the market.

Why the two returns diverge

A portfolio with no deposits or withdrawals after the first day shows identical TWR and MWR. Once cash moves in or out, the two can part ways, depending on whether changes in your invested balance coincide with strong or weak periods.

The size of the gap depends on how large the cash flows are relative to the balance and how much performance varied. Big contributions just before a volatile stretch can move MWR a long way from TWR; small, evenly spaced contributions into a smoothly rising market barely move it. That is why the same fund can leave two investors with very different personal returns over the same years.

Using the results

Use TWR to decide whether the investment is worth holding, comparing it with a relevant benchmark and alternatives. Use MWR to understand your own behaviour and the wealth you actually built.

A consistently large positive gap across several holdings suggests your timing, not your fund selection, needs fixing. Automate regular contributions, avoid reacting to headlines, and resist adding heavily after a rally or selling into a decline; a steady approach tends to shrink the gap toward zero.

Common mistakes

• Comparing a fund's TWR with your own MWR and blaming the fund. The difference is your timing; judge the fund on TWR alone.
• Assuming a positive gap means you chose bad investments. It usually means the investment did well and timing held your personal result back.
• Ignoring the size of cash flows. A tiny deposit cannot create a large gap; only meaningful movements of money relative to the balance can.

Most investors who close their behaviour gap do it by becoming steadier in their own conduct, not by getting smarter about markets.

This article is general information only and is not financial advice.

About This TWR vs MWR Calculator

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