freebirdcapitalTwo returns, two questions
The time-weighted return answers: how good was my strategy — regardless of when I deposited or withdrew money? The internal rate of return (money-weighted) answers: what return did my invested money earn? The two can differ widely. Explained in Measuring portfolio returns.
One date per row: the portfolio value immediately before a deposit or withdrawal, and the cash flow itself (deposit positive, withdrawal negative). The first row is the start, the last the valuation date. Dividends that stay in the portfolio are part of its value, not a cash flow.
| Date | Value before cash flow | Cash flow (+ in / − out) | Sub-period return |
|---|
Time-weighted, total
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Time-weighted p.a.
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Internal rate of return p.a.
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Net invested
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Gain in euros
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How it is calculated
sub-period return = value before the next cash flow ÷ (value before this cash flow + cash flow) − 1
time-weighted = (1 + R₁) × (1 + R₂) × … × (1 + Rₙ) − 1 · annualised over the days
internal rate of return = the rate at which the present value of all deposits equals the present value of withdrawals and final value
time-weighted = (1 + R₁) × (1 + R₂) × … × (1 + Rₙ) − 1 · annualised over the days
internal rate of return = the rate at which the present value of all deposits equals the present value of withdrawals and final value
Runs entirely in your browser; no inputs are stored or transmitted. For periods under one year, annualising says little.
This article is for information and education only. It is not investment advice and not a
recommendation to buy or sell any security. Model calculations simplify deliberately; past performance is not a reliable
indicator of future results.
David Krause
Graduate industrial engineer (Dipl.-Wirtschaftsingenieur), 15+ years of costing, cost accounting and plant controlling in manufacturing. Here he asks the same questions from the outside: what does a company earn on its capital, and what may it cost?