Money-Weighted Rate of Return & Time-Weighted Rate of Return
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Money-Weighted Rate of Return (MWRR) and Time-Weighted Rate of Return (TWRR) are two methods used to calculate the performance of an investment portfolio.
MWRR takes into account the timing and amount of cash flows into and out of the portfolio. It is also known as the Internal Rate of Return (IRR) or the Dollar-Weighted Rate of Return. MWRR is calculated by finding the discount rate that equates the present value of all cash flows with the initial investment. MWRR is useful for measuring the performance of a portfolio when the investor has control over the timing and amount of cash flows.
TWRR, on the other hand, measures the performance of a portfolio without taking into account the timing and amount of cash flows. It is also known as the Geometric Mean Return or the Time-Weighted Rate of Return. TWRR is calculated by finding the compound annual growth rate of the portfolio over a specific period of time. TWRR is useful for measuring the performance of a portfolio when the investor has no control over the timing and amount of cash flows, such as in a mutual fund or a pension plan.
In summary, MWRR takes into account the timing and amount of cash flows, while TWRR measures the performance of a portfolio without considering the timing and amount of cash flows. Both methods have their own advantages and disadvantages, and investors should choose the method that best suits their investment goals and objectives.
MWRR takes into account the timing and amount of cash flows into and out of the portfolio. It is also known as the Internal Rate of Return (IRR) or the Dollar-Weighted Rate of Return. MWRR is calculated by finding the discount rate that equates the present value of all cash flows with the initial investment. MWRR is useful for measuring the performance of a portfolio when the investor has control over the timing and amount of cash flows.
TWRR, on the other hand, measures the performance of a portfolio without taking into account the timing and amount of cash flows. It is also known as the Geometric Mean Return or the Time-Weighted Rate of Return. TWRR is calculated by finding the compound annual growth rate of the portfolio over a specific period of time. TWRR is useful for measuring the performance of a portfolio when the investor has no control over the timing and amount of cash flows, such as in a mutual fund or a pension plan.
In summary, MWRR takes into account the timing and amount of cash flows, while TWRR measures the performance of a portfolio without considering the timing and amount of cash flows. Both methods have their own advantages and disadvantages, and investors should choose the method that best suits their investment goals and objectives.
CFA考试视频Money-Weighted Rate of Return
