Money-Weighted Return

Money-weighted return is the internal rate of return of all the cash flows into and out of a portfolio, together with its final value. Periods when more money is invested have a greater influence on the result.

Using the same example as time-weighted return, an investor puts in 100,000, which rises 20% to 120,000. They add another 100,000 and the portfolio then falls 10% to 198,000. The investments returned about 3.9% a year on a time-weighted basis, but the investor's money-weighted return is about −0.7% a year, because more of their money was invested during the losing year.

Money-weighted return shows how well an individual investor did, including the effect of their decisions about when to invest. It is also used for private equity and other investments where the manager controls the timing of cash flows.

A large gap between an investor's money-weighted return and a fund's time-weighted return can reveal the cost of poor timing, such as investing after strong performance and withdrawing after falls.