Previously, your returns could look inflated or misleading when you deposited or withdrew money. This didn’t show the real performance of your investments. That’s why we’re switching to a better method: Time-Weighted Return (TWR).
TWR is a standard industry method that removes the impact of cash flows (deposits and withdrawals). It shows pure investment growth, not distorted by how much or when you add or remove money.
How TWR works:
Split into Sub-Periods
Every deposit or withdrawal starts a new sub-period.
Calculate Each Period's Return
Returns are measured before and after each cash flow, ignoring the cash flow itself.
Chain the Returns Together
Multiply the returns of each period to get your total TWR.
Example
Month | Action | Value | Cash Flow |
0 | Invest $1,000 | $1,000 | +1,000 |
1 | Fund +10% | $1,100 | $0 |
2 | Add $500 | $1,600 | +500 |
3 | Fund +20%, Sell | $1,980 | –1,980 |