TWRR Calculator
Category: Portfolio & PerformanceCalculate the Time-Weighted Rate of Return (TWRR) to measure investment performance independent of the timing and amount of cash flows, ideal for comparing portfolio managers and investment strategies
Investment Period Parameters
Portfolio Valuation & Cash Flows
Time-Weighted Rate of Return Results
Period Returns Breakdown
Cumulative Return Analysis
Sub-Period Analysis
| Period | Start Date | End Date | Start Value | End Value | Cash Flow | Return |
|---|
Investment Return Comparison
TWRR vs Money-Weighted Return
The difference between TWRR and MWRR indicates the impact of your cash flow timing on returns.
A positive difference suggests your cash flows were timed favorably relative to performance.
Performance vs Benchmark
Alpha represents your portfolio's excess return compared to the benchmark.
Positive alpha indicates outperformance, negative indicates underperformance.
Understanding Time-Weighted Rate of Return (TWRR)
The Time-Weighted Rate of Return (TWRR) measures investment performance independent of the timing and amount of cash flows. It's designed to evaluate the effectiveness of investment decisions by portfolio managers and strategies, regardless of when clients add or withdraw funds.
How TWRR Works
- Geometric Linking: TWRR links together the returns of individual sub-periods, eliminating the effects of cash flows.
- Cash Flow Neutrality: Unlike money-weighted returns (IRR), TWRR isn't affected by the timing or size of external cash flows.
- Equal Weighting: Each sub-period is weighted equally, regardless of the invested amount during that period.
- Industry Standard: TWRR is the preferred performance metric for evaluating investment managers and comparing strategies.
When to Use TWRR
- Manager Evaluation: Best for evaluating portfolio managers since it isolates their investment decisions from client cash flow timing.
- Strategy Comparison: Ideal for comparing investment strategies or funds on an equal basis.
- Benchmark Comparison: Most appropriate for comparing your returns against market benchmarks.
- Long-term Analysis: Provides a clearer picture of long-term investment performance across multiple periods.
TWRR Formula
The Time-Weighted Rate of Return is calculated by:
Where râ, râ, ..., râ are the returns for each sub-period between cash flows.
For each sub-period, the return is calculated as:
TWRR vs Money-Weighted Return
| Feature | Time-Weighted Return (TWRR) | Money-Weighted Return (IRR) |
|---|---|---|
| Cash Flow Sensitivity | Not affected by cash flow timing | Significantly affected by cash flow timing |
| Primary Use | Evaluating investment managers | Personal investment performance |
| Calculation Method | Geometric linking of sub-period returns | Internal Rate of Return (IRR) calculation |
| Best For | Comparing strategies or managers | Understanding actual investor experience |
Tracking TWRR Results to Measure True Portfolio Performance
After running the Time-Weighted Rate of Return (TWRR) calculator, you've got a comprehensive view of your portfolio's performance that strips away the noise of cash flow timing. Thatâs a big dealâespecially if you're trying to judge the effectiveness of an investment strategy or compare fund managers on an even playing field. Letâs unpack what those TWRR results mean, what to watch for, and how traders and investors alike can act on the insights.
Key Numbers and What They Tell You
- Total TWRR: This is your portfolioâs overall return for the selected period, calculated independently of when money was added or withdrawn. A higher TWRR points to strong underlying strategy performance.
- Annualized TWRR: Adjusts your return to a yearly basis, useful for comparing across timeframes. If your total TWRR is 12.48% over a year, then the annualized return is the same. Over different periods, this figure helps normalize performance.
- Inflation-Adjusted TWRR: Shows the real purchasing power of your return. In this case, 9.74% after accounting for inflation indicates solid growth above the 2.5% inflation rate.
- Benchmark Comparison: If you're outperforming your benchmark, that's a green flag. A +2.48% alpha signals your portfolio added extra value beyond passive market exposure.
- Net Cash Flow: Reflects the sum of deposits and withdrawals. While TWRR adjusts for these, itâs still worth knowing how much capital you moved in or out over time.
Signals to Watch in Your TWRR Output
The real strength of TWRR is in the sub-period breakdownsâit tells you when performance peaked or dipped and isolates results from investor behavior. Hereâs how to interpret what you see:
- Positive returns across periods: Suggest consistency in strategy execution, a good sign for long-term approaches.
- Sharp drops in certain sub-periods: These may correlate with market events or tactical missteps. Use these dips to assess risk management and rebalancing strategies.
- TWRR higher than MWRR (IRR): Indicates your strategy worked better than your cash flow timing. This is common if investments performed well before you added most of your capital.
- Alpha greater than zero: Shows true outperformance against a benchmark. This is a crucial signal for fund comparisons or strategy validation.
Risks and Considerations When Using TWRR
While TWRR offers a clean view of performance, no metric is without limitations. Here are some things to keep in mind:
- Doesnât reflect your actual gains: TWRR ignores when you added or pulled money. Your personal return experience (measured by MWRR) could be very different.
- High TWRR + Negative Cash Flow? Be cautiousâstrong performance on a declining capital base may look good on paper but doesnât translate to real gains.
- Short periods distort annualized figures: A 5% return over one month annualizes to a much higher number, but it doesnât mean youâll earn that for a full year.
- Benchmark mismatch: Be sure the benchmark return is relevant to your asset mix. Comparing a tech-heavy portfolio to a broad market index might skew the context.
Practical Steps Based on Your Results
Once youâve reviewed the results, hereâs how to take the next step:
- Track over time: One-off TWRR snapshots are helpful, but tracking rolling or quarterly TWRRs tells a more meaningful story.
- Compare managers: If youâre evaluating multiple advisors or strategies, line up their TWRRs for apples-to-apples comparisonsâthis is where TWRR shines.
- Use in performance reviews: TWRR is a core metric for professional portfolio reviews and fund fact sheets. Itâs credible and industry-standard.
- Dig into the sub-periods: Identify when returns were strongest or weakest and map them to strategy decisions or market events.
- Pair with MWRR: Use both TWRR and MWRR together. TWRR tells you how your investments performed; MWRR tells you how you performed.
Next Steps with Your TWRR Analysis
Your TWRR results provide a cleaner lens to view your portfolioâs actual investment strategy, unclouded by the timing of deposits or withdrawals. If the total return met or exceeded your expectationsâand especially if it beat your benchmarkâyouâre likely on the right track. But donât stop here. Use this metric alongside MWRR, benchmark data, and risk assessments to build a full picture of your portfolioâs health.
If you're managing a portfolio for clients or assessing fund managers, TWRR should be your go-to measure. For personal investment performance, consider reviewing both TWRR and MWRR side by side. Either way, revisiting your results periodically will help you stay aligned with your financial goalsâand react early if something goes off course.