I've always known and understood the difference in Time Weighted Returns vs. Money Weighted Returns. However, I've been digging into the details recently and come across some interesting things. For those that need a refresher, this link is a really good summary in cartoon format: Making Sense of Your Investment Performance
Interesting #1: Since summer of 2016, Canada has required firms to report client personal performance using Money Weighted numbers. That is, it reflects the actual gain/loss for each client.
Interesting #2: I can find no such regulation (or even recommendation) for USA. In fact it would appear some companies report TWR and others MWR. I can confirm that TRowe Price uses TWR for their "Personal rate of return" as detailed at this link. I have read that others use MWR.
Interesting #3: MWR can easily be calculated using the XIRR function in Excel or Google Sheets. Of course, you need to have all transactions and their dates for the desired time period
Interesting #4: I have automatically invested in one particular fund for the past 20 years. TRowePrice are reporting that my personal rate of return (using TWR) is 7%. My calculation - it really is easy using XIRR - is over 10%.
TWR is very useful for comparing different investments. However, MWR is your actual return. It is very interesting and useful to know your actual return for planning purposes.
Interesting #1: Since summer of 2016, Canada has required firms to report client personal performance using Money Weighted numbers. That is, it reflects the actual gain/loss for each client.
Interesting #2: I can find no such regulation (or even recommendation) for USA. In fact it would appear some companies report TWR and others MWR. I can confirm that TRowe Price uses TWR for their "Personal rate of return" as detailed at this link. I have read that others use MWR.
Interesting #3: MWR can easily be calculated using the XIRR function in Excel or Google Sheets. Of course, you need to have all transactions and their dates for the desired time period
Interesting #4: I have automatically invested in one particular fund for the past 20 years. TRowePrice are reporting that my personal rate of return (using TWR) is 7%. My calculation - it really is easy using XIRR - is over 10%.
TWR is very useful for comparing different investments. However, MWR is your actual return. It is very interesting and useful to know your actual return for planning purposes.