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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.

-Jeff Pollock

DISCLAIMER: The opinions expressed in this publication are for general informational purposes only and are not intended to represent specific advice. The views reflected in this publication are subject to change at any time without notice. Every effort has been made to ensure that the material in this publication is accurate at the time of its posting. However, Schneider & Pollock Wealth Management Inc. will not be held liable under any circumstances to you or any other person for loss or damages caused by reliance of information contained in this publication. You should not use this publication to make any financial decisions and should seek professional advice from someone who is legally authorized to provide investment advice to assess your goals and objectives, personal circumstances, and make an informed suitability assessment.


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