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The post Dollar Weighted vs. Time Weighted: Investments appeared first on SmartReads by SmartAsset. ... Julia has the same time-weighted value as Richard does. Any money that she invested on Jan ...
The time-weighted return (TWR) [1] [2] is a method of calculating investment return, where returns over sub-periods are compounded together, with each sub-period weighted according to its duration. The time-weighted method differs from other methods of calculating investment return, in the particular way it compensates for external flows.
Time-weighted return (TWR) calculates an investment portfolio or fund’s performance while accounting for external cash flows. Investment funds usually have money flowing in or out at various times.
Like the time-weighted return, the money-weighted rate of return (MWRR) or dollar-weighted rate of return also takes cash flows into consideration. They are useful evaluating and comparing cases where the money manager controls cash flows, for example private equity.
The time-weighted rate of return measures how your investments have performed in a vacuum. Basically, for the assets that you purchased, it determines how much have they gained or lost value.
The modified Dietz method is an example of a money (or dollar) weighted methodology (as opposed to time-weighted). In particular, if the modified Dietz return on two portfolios are R 1 {\displaystyle R_{1}} and R 2 {\displaystyle R_{2}} , measured over a common matching time interval, then the modified Dietz return on the two portfolios put ...
Another important distinction is between the money-weighted return and the time-weighted return. The former is appropriate if the manager determines the timing of inflows in or outflows from the portfolio. The latter is appropriate when the manager is not responsible for the timing of cash inflows into and cash outflows from the portfolio.
The time value of money is the idea that receiving a given amount of money today is more valuable than receiving the same amount in the future due to its potential earning capacity. If you invest ...