π Time-Weighted Return
Evaluate a manager's skill by removing the impact of cash flows.
Time-weighted return (TWR) measures the compound growth rate of a portfolio, eliminating the distorting effects of external cash flows like deposits and withdrawals. It breaks the performance period into sub-periods at each cash flow, calculates the return for each sub-period, and then geometrically links them together. This method is the industry standard for evaluating investment managers because it isolates their decisions from the client's timing of contributions.
π‘ Use time-weighted return to judge manager skill, and money-weighted return to understand your own experience.
#finance #education #investing #performance #returns
Evaluate a manager's skill by removing the impact of cash flows.
Time-weighted return (TWR) measures the compound growth rate of a portfolio, eliminating the distorting effects of external cash flows like deposits and withdrawals. It breaks the performance period into sub-periods at each cash flow, calculates the return for each sub-period, and then geometrically links them together. This method is the industry standard for evaluating investment managers because it isolates their decisions from the client's timing of contributions.
π‘ Use time-weighted return to judge manager skill, and money-weighted return to understand your own experience.
#finance #education #investing #performance #returns