Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Money-weighted return accounts for the actual size and timing of an investor's own deposits and withdrawals, which is a genuinely different question than the fund's own time-weighted performance. An investor who added a large sum right before a downturn sees a worse money-weighted return than the fund's published performance figure, through no fault of the fund itself.
Before you rely on it
What to check
Confirm whether a return figure you're comparing against is money-weighted, reflecting your own contribution timing, or time-weighted, reflecting the fund's performance alone, since the two answer different questions.
The common error
Where people go wrong with money-weighted return calculator
Comparing your own money-weighted return directly against a fund's published time-weighted performance figure as if they measured the same thing. Contribution timing can make the two diverge meaningfully even when the underlying fund performed exactly as advertised.
Sensitivity evidence
How initial cash flow changes the estimated IRR
| Initial cash flow | Estimated IRR | Total net cash flow |
|---|---|---|
| $8,000 | 29.4% | $9,500 |
| $9,000 | 24.1% | $8,500 |
| $10,000worked example | 19.7% | $7,500 |
| $11,000 | 15.9% | $6,500 |
| $12,000 | 12.6% | $5,500 |
Every input, tested
Which input moves the estimated IRR most
| Input | Tested from | To | Estimated IRR at each end | Swing |
|---|---|---|---|---|
| Initial cash flow | $9,000 | $11,000 | 24.1% to 15.9% | 8.2% (42%) |
| Year 2 inflow | $2,700 | $3,300 | 18.9% to 20.6% | 1.7% (8.7%) |
| Year 1 inflow | $2,250 | $2,750 | 18.9% to 20.6% | 1.7% (8.6%) |
| Year 3 inflow | $3,150 | $3,850 | 18.9% to 20.5% | 1.7% (8.4%) |
| Year 4 inflow | $3,600 | $4,400 | 18.9% to 20.5% | 1.6% (8.1%) |
| Year 5 inflow | $4,050 | $4,950 | 19.0% to 20.4% | 1.5% (7.6%) |
Two variables at once
Estimated IRR by initial cash flow and year 1 inflow
| Initial cash flow \ Year 1 inflow | $2,000 | $2,500 | $3,000 |
|---|---|---|---|
| $8,000 | 27.2% | 29.4% | 31.7% |
| $9,000 | 22.2% | 24.1% | 26.1% |
| $10,000 | 18.0% | 19.7% | 21.4% |
| $11,000 | 14.4% | 15.9% | 17.5% |
| $12,000 | 11.3% | 12.6% | 14.0% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Initial cash flow | $10,000 |
| Year 1 inflow | $2,500 |
| Year 2 inflow | $3,000 |
| Year 3 inflow | $3,500 |
| Year 4 inflow | $4,000 |
| Year 5 inflow | $4,500 |
| Estimated IRR | 19.7% |
| Total net cash flow | $7,500 |
Where the inputs come from
Enter the initial deposit as the first cash flow and each later year's net cash flow after it. In investing language, contributions are outflows from your pocket and withdrawals or the final balance are inflows. The tool follows the same structure as the IRR calculator, so build the yearly list from your statements, ending with the current value as the last inflow. Uneven timing within a year is ignored.
When the result stops applying
Because it depends on when you invest, two people in the same fund can have different money-weighted returns. It cannot separate skill from timing. The approximation here uses year-end flows, so contributions made throughout the year are simplified. For irregular dates, use XIRR for a more precise result.
What to compare it with
Compare with the time-weighted return to see how much your timing helped or hurt, and with the investment return calculator for a simple percentage. The XIRR calculator handles actual dates. If you routinely add money after markets have risen, dollar-cost averaging plans spread the timing risk more evenly.
People also ask
Frequently asked questions
What is the difference between money-weighted and time-weighted return?
Money-weighted return includes the effect of when you added or removed money, while time-weighted return removes it to isolate the investment's performance.
Which should I use to judge my own results?
Use money-weighted return for your own experience and time-weighted return when comparing a fund or manager with a benchmark.
Is money-weighted return the same as IRR?
Yes. It is the internal rate of return on your cash flows, so this page shares its calculation with the IRR calculator.