Time-weighted rate of return


The time-weighted rate of return calculates the compounded rate of growth over a stated evaluation perioed of one unit of money initially invested in the account.


Return actually is not weighted by time. Is this term a little misleading? Thanks!

It is in the sense that a 5% return over one year isn’t the same as a 5% return over 5 years.

I suppose that one could call it an _ inverse _ time weighted return (5% over 1 year’s better than 5% over 5 years), but that’d be awkward.

Thanks Magician!

From curriculum:

The TWR derives its name from the fact that each subperiod return within the full evaluation period receives a weight proportional to the length of the subperiod relative to the length of the full evaluation period.

Hmm…if the subperiod return is expressed as the cumulative return over smaller time units…than it seems weight proportional.