Your portfolio went from $10,000 to $18,000. Did your investments really return 80%?

One year, one portfolio

1. Start of year

   $10,000

   →

2. First half

   +10% →$11,000

   →

3. Contribution

   +$9,000 →$20,000

   →

4. Second half

   −10% →$18,000

The ending balance is $8,000 above where it started. But $9,000 came from the investor. So the investment-result amount is $8,000 − $9,000 = −$1,000.

That is the first distinction: money entering or leaving a portfolio changes its value without being investment performance.

How did the investments perform?

To answer that question, the contribution should not be allowed to dominate the return. Time-weighted return (TWR) splits the period at the external cash flow and links the investment returns on either side.

First half:  +10%
Second half: −10%

(1 + 0.10) × (1 − 0.10) − 1 = −1.00%

TWR: −1.00%

The $9,000 contribution changed how much capital was in the account. TWR is designed so the size and timing of that external flow do not drive the investment-performance result.

A defensible TWR still needs trustworthy portfolio valuations around the relevant cash-flow boundaries and correct classification of external flows. Transactions alone may not prove the result.

What return did the investor's actual capital experience?

That is a different question. A money-weighted return deliberately incorporates when money entered or left and how much capital was exposed at each point.

For this example, an illustrative annualized IRR uses:

Negative values represent money invested into the portfolio; the positive final value represents the portfolio value received back for this calculation.

−10000 − 9000 / (1 + r)^0.5 + 18000 / (1 + r) = 0

Illustrative annualized MWR / IRR: ≈ −6.86%

The result is lower than the −1.00% TWR because more of the investor's capital was exposed during the weaker second half. The two numbers do not contradict each other; they weight the cash-flow history differently because they answer different questions.

Upogee does not currently present MWR/XIRR as a portfolio metric. This page explains the methodology; it does not imply product support.

Neither number is the “true” return

TWR and MWR can both be mathematically valid because they answer different questions.

So “which one is more accurate?” is the wrong first question. Start with what you want the return to describe.

Real return is a separate question

Real return is about purchasing power, not cash-flow treatment. If a matching-period nominal return is +5% and inflation is +3%:

(1.05 / 1.03) − 1 ≈ +1.94%

The exact inflation-adjusted return is about +1.94%. Real return does not choose between TWR and MWR; it asks what a nominal return means after inflation.

Sometimes the correct answer is unavailable

The formulas are not the hard part. The evidence is.

TWR needs trustworthy valuations around the relevant external cash-flow boundaries and correct flow classification.

MWR needs complete dated external cash flows and the relevant boundary value.

If history is missing or ambiguous, a defensible metric can be unavailable. Filling the gap with a convenient estimate creates precision the portfolio record does not support.

That constraint is useful. A return figure is only valuable if you can explain why the data deserves it.

Methodology sources

The definitions and methods above are anchored to professional and primary investor-education sources rather than an Upogee-specific definition.

• GIPS Standards Handbook
• CFA Institute — Rates and Returns
• Investor.gov — Real Return

The worked figures on this page follow the assumptions shown above. They are educational methodology, not personalized investment advice.

Related reading

Frequently asked questions