This is one of the most common questions investors ask, especially early on, when you still lack the reference points to judge whether a given performance is good or not (our Foundations program covers these basics if the topic is new to you). Here's how to read the numbers correctly.
What is the time-weighted rate of return (TWRR)?
TWRR measures a portfolio's performance while setting aside the amount and timing of your deposits or withdrawals. It only captures the performance of the investments themselves, without being influenced by your decisions to invest more or less at any given moment.
This is precisely what makes it the standard reference when comparing your performance to that of a friend, a fund, or an index: it lets you judge the quality of investment choices, independent of when you happened to invest.
What is the money-weighted rate of return (MWRR)?
MWRR, by contrast, takes into account the amount and timing of each contribution or withdrawal. It reflects the actual return your money achieved, factoring in when you invested it.
This highlights how well-timed your decisions were: for the same amount invested, two investors can end up with very different MWRRs, depending on whether they added to their position during a price dip or bought at the peak.
One caveat, though: MWRR is only truly meaningful when the starting capital stays fixed. Once you're making regular contributions, as with an ETF (to learn more, see our article on what an ETF is), it mainly reflects your discipline and consistency as a saver over time, rather than any real skill at predicting market movements.
An example to make it clear: Marc and Sophie
Take Marc and Sophie, who each invest 10,000 CHF in the same fund in January. This fund grows by 1% every month through December. Over the course of the year, Marc adds 500 CHF a month on top of his initial investment, while Sophie leaves her portfolio untouched.
Without even reaching for a calculator, it's already clear that the final value of Marc's portfolio will far exceed Sophie's, boosted by his regular contributions. But what about the rate of return?
On the TWRR side, Marc and Sophie show exactly the same performance, around 11.57%. That makes sense: this indicator neutralizes the effect of Marc's contributions and only reflects the fund's own performance, which is identical for both of them.
On the MWRR side, however, Marc clearly outpaces Sophie (around 14.98% versus 11.57%). His monthly contributions, injected into a steadily rising fund, mechanically boosted his money-weighted return.
The lesson to take away: if you want to compare your performance to someone else's, look at the TWRR. If you want to measure the actual gain generated by your money, timing of contributions included, look at the MWRR.
In conclusion
TWRR and MWRR are among the most widely used indicators in the world for measuring fund performance. The GIPS (Global Investment Performance Standards), the international reference for performance reporting, actually require both to be disclosed together. Each has its limitations when used on its own: the most reliable approach is to look at them together, for a complete and honest picture of your performance.
Frequently Asked Questions
What's the main difference between TWRR and MWRR?
TWRR measures the pure performance of the investments themselves, without regard to when money enters or leaves the portfolio. MWRR measures the actual return achieved by your money, including the timing of contributions and withdrawals.
Which one should I use to compare my results to a friend's or to an index?
TWRR is the right indicator. By neutralizing the effect of contribution timing, it isolates the quality of the investment choices themselves, which makes the comparison genuinely meaningful.
Why can two investors in the same fund end up with different MWRRs?
Because MWRR accounts for when each investor added or withdrew funds. Someone who added to their position during a downturn will generally end up with a higher MWRR than someone who invested the same total amount at the market's peak.
Does a high MWRR always mean the investor timed the market well?
Not always. When contributions are made regularly, as with a savings plan, a high MWRR mainly reflects good saving discipline over time, rather than any real ability to predict market movements.
Why do GIPS standards require disclosing both TWRR and MWRR?
Because each indicator only tells part of the story. Presenting them together gives a fuller, more honest picture: the quality of the investments themselves, and how well-timed the investor's decisions were.
Want a clearer picture of your own situation? Our Financial Diagnostic gives you a first overview in just a few minutes!
The information presented in this article is provided for informational and educational purposes only. It does not constitute personalized advice, investment advice, or an offer or solicitation to buy or sell financial products.
Any investment decision should be made after a thorough analysis of your personal situation, your objectives, and your risk profile, and may require the advice of a licensed financial advisor.
Past performance is no guarantee of future results. Investments carry risk, including the risk of capital loss.