Money Weighted Return Calculator

Enter Returns (comma-separated, e.g., 0.05, 0.03, -0.02):



Calculate

Money Weighted Return (MWR):

The money-weighted return (MWR) calculator is a valuable tool for investors to measure the performance of their investments while accounting for the timing and size of cash flows. It provides a personalized perspective of returns, aligning with individual cash flow patterns.

Formula

The formula to calculate the money-weighted return is:
MWR = [(1 + r1) * (1 + r2) * … * (1 + rn)]^(1/n) – 1
Where:

• r1, r2, …, rn are the periodic returns.
• n is the number of periods.

How to Use

1. Input the periodic returns as percentages or decimal values, separated by commas.
   • Example: For 5%, 3%, and -2%, enter 0.05, 0.03, -0.02.
2. Click the Calculate button to compute the money-weighted return (MWR).
3. View the result as a percentage representing your investment’s average annual return.

Example

Suppose the returns for three periods are:

• Period 1: 5% (0.05)
• Period 2: 3% (0.03)
• Period 3: -2% (-0.02)

The MWR is calculated as:
MWR = [(1 + 0.05) * (1 + 0.03) * (1 – 0.02)]^(1/3) – 1
MWR ≈ 0.0197 or 1.97%

FAQs

1. What is the money-weighted return?
   The money-weighted return measures the investment performance considering cash flow timing and amounts.
2. How does MWR differ from time-weighted return (TWR)?
   MWR considers the impact of cash flows, while TWR isolates returns from cash flow effects.
3. Can MWR be negative?
   Yes, if the investment loses value over time.
4. Is MWR suitable for comparing different investments?
   Not always, as it depends on individual cash flows, making it less comparable than TWR.
5. What inputs are required for MWR calculation?
   Periodic returns and the number of periods.
6. How does compounding affect MWR?
   MWR inherently accounts for compounding by using geometric averages.
7. What does a high MWR indicate?
   A high MWR indicates better investment performance with respect to cash flows.
8. Can MWR handle irregular cash flow intervals?
   MWR assumes equal periods; for irregular intervals, internal rate of return (IRR) may be more appropriate.
9. What is the typical range for MWR?
   MWR typically ranges between -100% and values exceeding 100%, depending on performance.
10. Why is MWR important for investors?
    It provides a realistic measure of returns based on actual cash flow timing.
11. Can MWR be used for mutual funds?
    Yes, it’s applicable for investments like mutual funds where cash flows vary.
12. What factors affect MWR?
    Factors include the magnitude of returns, timing, and size of cash flows.
13. Is MWR impacted by market volatility?
    Yes, since it reflects returns over time, market fluctuations can influence it.
14. What are the limitations of MWR?
    It is less suitable for comparing investments and assumes uniform periods.
15. Does MWR account for fees?
    Only if fees are included in the returns used for calculation.
16. How does reinvestment affect MWR?
    Reinvested returns are included, impacting the final value.
17. Can MWR be calculated for partial periods?
    Yes, but ensure accurate adjustments for the period length.
18. Is the MWR formula difficult to compute manually?
    Yes, it involves complex calculations best handled by tools like this calculator.
19. How can I improve my MWR?
    By optimizing cash flow timing and investing in higher-performing assets.
20. What other metrics should be used alongside MWR?
    Consider metrics like TWR, IRR, and Sharpe ratio for a comprehensive evaluation.

Conclusion

The money-weighted return calculator is a practical tool for investors to measure personalized investment performance. By incorporating cash flow timing, it offers a realistic view of returns, aiding informed financial decisions and effective portfolio management.