Money-Weighted Return vs. Time-Weighted Return

Several years back, new regulations came into force that required our industry to share with clients a second type of investment return called the money-weighted return. Previously, only the time-weighted return was required.

Though required to report the money-weighted return only once a year, we have decided to include both the time-weighted and money-weighted return to our clients in each monthly report that we distribute.

The difference between the two types of returns is cash flow.

The time-weighted return shows you how the underlying investments have performed over time. It strips out the effects of deposits and withdrawal that you make in your portfolio.

The money-weighted return shows you how your portfolio has performed from a dollars and cents perspective, taking into account how the underlying investments have done and also taking into account deposits and withdrawals.

For example, if your account was $1 million at the beginning of the year and the capital gains and dividends amounted to $100K, but you withdrew $200K, your time-weighted return would be a positive figure while your money-weighted return would be negative.

If you don’t make many deposits or withdrawals, the time-weighted and money-weighted returns will be very similar, if not the exact same.

Because both types of return share important information, we have decided to include both figures going forward.