TWRR (Time-Weighted Rate of Return)

TWRR measures true portfolio performance by eliminating the effect of contributions. The standard method for benchmark comparison. Index Balance calculates it automatically.

Definition

The TWRR (Time-Weighted Rate of Return) is the standard method for measuring the true performance of a portfolio, eliminating the effect of cash flows (contributions and withdrawals). It is the metric used by investment funds to report their official returns, because it measures exclusively the manager's skill (or market movement), regardless of when the investor added their money.

If you contribute €1,000 the day before a major market fall, the TWRR does not penalise you for that poor timing, because it measures the performance of the asset, not your personal returns as an investor. To measure how much you personally gained in real money terms, the appropriate metric is the MWRR.

Index Balance uses TWRR as the primary portfolio return metric, which is the same methodology used by the MSCI World and other indices to calculate their performance, making the comparison with the benchmark direct and fair.

Practical example

You contribute €10,000 in January. By June, the fund has risen 10% (you have €11,000). You make another €10,000 contribution. By December the fund falls 5%. Your MWRR (what you actually earned in euros) might be negative due to poor timing. But TWRR reports +4.5% because the market rose 10% in the first half and fell 5% in the second, regardless of when you contributed.