Money-Weighted Return Calculator

Money-weighted return is a financial metric that calculates the total return on an investment, taking into account the varying amounts of money invested over time. This calculator helps you determine the overall return on your investment portfolio by considering both the returns and the amounts invested at different periods.

What is Money-Weighted Return?

Money-weighted return is a method of calculating investment performance that accounts for changes in the amount of money invested over time. Unlike time-weighted return, which assumes a constant investment amount, money-weighted return provides a more accurate reflection of actual investment performance.

This metric is particularly useful for:

Evaluating the performance of investment portfolios with varying contributions
Comparing investment strategies that involve regular additions or withdrawals
Assessing the true return on investments where the investment amount changes frequently

How to Calculate Money-Weighted Return

Calculating money-weighted return involves several steps:

Determine the total amount invested at each period
Calculate the return for each period
Sum the returns and divide by the total amount invested
Multiply by 100 to get the percentage return

The formula for money-weighted return is:

Money-Weighted Return = (Σ (Return × Investment Amount)) / (Σ Investment Amount) × 100

Where:

Σ (Return × Investment Amount) is the sum of each period's return multiplied by the investment amount
Σ Investment Amount is the sum of all investment amounts

Formula

The money-weighted return formula is:

Money-Weighted Return = (Σ (Return × Investment Amount)) / (Σ Investment Amount) × 100

This formula accounts for the varying amounts invested at different times, providing a more accurate measure of investment performance than time-weighted return.

Example Calculation

Let's look at an example to understand how money-weighted return works:

Suppose you invest $10,000 in a stock at the beginning of the year and earn a 10% return. Then, you add another $5,000 in the middle of the year and earn a 5% return on the total investment. At the end of the year, you have:

Period	Investment Amount	Return	Return × Investment
First Half	$10,000	10%	$1,000
Second Half	$15,000	5%	$750
Total			$1,750

Total investment amount: $10,000 + $5,000 = $15,000

Money-weighted return: ($1,750) / $15,000 × 100 = 11.67%

This means your money-weighted return for the year is 11.67%.

Interpreting the Results

Interpreting money-weighted return results requires understanding several key points:

The result shows the actual return on your investment, considering all contributions
It's different from time-weighted return, which assumes a constant investment amount
A higher money-weighted return indicates better performance relative to the actual amounts invested

Money-weighted return is particularly useful for investors who make regular contributions to their portfolios, as it provides a more accurate measure of their overall investment performance.

FAQ

What is the difference between money-weighted and time-weighted return?

Money-weighted return accounts for varying investment amounts, while time-weighted return assumes a constant investment amount. Money-weighted return is more accurate for investors with irregular contributions.

When should I use money-weighted return instead of time-weighted return?

Use money-weighted return when your investment amounts change frequently. It provides a more accurate reflection of your actual investment performance.

Can money-weighted return be negative?

Yes, if your investment loses value over time, the money-weighted return can be negative, reflecting the actual performance of your investments.