Money-Weighted Return vs Time-Weighted Return: Which One Actually Matters for You?

Every return figure answers a specific question. Most investors don't realise there are two fundamentally different questions you can ask about a portfolio's performance, and each has its own correct answer.

The first: "How good was the investment strategy?" The second: "How did my actual money do?" These sound like the same question. They're not — and the difference can be large enough to completely change how you read a year's performance.

Consider a portfolio that surges 20% in the first half of the year, then earns just 2% in the second. An investor who put in €2,000 at the start and deployed €18,000 mid-year barely felt the rally — their personal return was a fraction of what the strategy delivered. That's not a discrepancy. That's TWR and MWR telling different truths about the same portfolio.

TWR measures the performance of the investment strategy itself, stripped of any influence from when and how much money was added or withdrawn. It answers: "If I had invested €1 at the start and never touched it, what would my return have been?"

The calculation breaks the full period into sub-periods every time a cash flow occurs. Each sub-period's return is calculated independently, then all sub-period returns are chained together multiplicatively. Because each sub-period is normalised by the portfolio value at its start, large deposits and withdrawals cannot distort the result.

TWR is the standard used by fund managers, benchmark indices, and performance reporting frameworks like GIPS*. It is the right metric for evaluating strategy quality — or comparing yourself against the S&P 500 — because it removes the noise of investor timing decisions.

MWR measures the return on your actual capital, weighted by how much money was at risk at each point in time. It is mathematically identical to the Internal Rate of Return (IRR): the discount rate that sets the net present value of all your cash flows — deposits in, withdrawals out, final portfolio value — to zero.

Unlike TWR, MWR is heavily influenced by the timing of your contributions. If you deploy a large deposit just before a period of strong gains, your MWR will be higher than TWR. If you deploy heavily just before a downturn, MWR will be lower. The strategy didn't change — your cash flow timing did.

The same scenario above produces a very different answer when viewed through MWR. The €2,000 invested in January experienced both halves: the strong +20% and the weak +2%. The €18,000 deployed in June only ever saw the +2% second half. Since the deposit was nine times larger, the return across all the money you actually put in is dragged down to 7.5% — far below what the strategy achieved.

The gap between TWR and MWR is not a calculation error — it is meaningful signal. The direction and magnitude of the gap tells you something specific about how your timing decisions interacted with market movements.

Neither metric is more accurate than the other. They measure different things, and both answers are correct — they just answer different questions.

Oitava calculates and displays both metrics on the Performance page. MWR reflects your actual personal return — what your money truly earned, accounting for every deposit and withdrawal. TWR strips that away, giving you a clean read on strategy quality.

Tracking both over time — especially as you add money, reinvest dividends, or trim positions — reveals something a single number never can: whether your results are driven by the quality of your decisions, or by the timing of your capital.

Worth noting: most retail brokerage apps display MWR by default, not TWR. If you've ever compared your app's return against an index and wondered why the numbers don't match — contribution timing is almost always the reason.