Time-weighted vs money-weighted return.

In plain English

Time-weighted return measures how the investments themselves performed by removing the effect of money moving in and out. It is the standard for judging a fund manager, who does not control when clients add or withdraw. Money-weighted return, essentially an internal rate of return, counts the size and timing of every contribution, so it reflects what actually happened to your balance. If you added money right before a strong stretch, your money-weighted return will be higher than the time-weighted figure. The two answer different questions and both can be correct at once.

01Why it matters

Your statement and a fund's published return can disagree by a wide margin, and this is usually why, not an error by either party.

02The math, step by step

A fund returns 0 percent in the first half of the year and 20 percent in the second. Its time-weighted return is 20 percent. If you invested $10,000 at the start and another $90,000 at midyear, most of your money caught only the strong half, so your money-weighted return is far closer to 20 percent than a small early stake would have produced.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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