A portfolio can show a positive time-weighted return while the investor has lost money. The missing detail is often when new money arrived. TWR and MWR answer different questions; choosing the larger number does not resolve the difference.
This guide is for investors reading portfolio reports, including IBKR users holding stocks, ETFs, or both. Follow the two deposits through one made-up example. No login, import, or email is needed.
01 / Follow the dollars
A deposit increases the balance. It is not a return.
The first $1,000 experiences both years. The extra $1,000 arrives after the gain, so it experiences only the loss. Follow each amount separately, then bring them back together.
The first deposit
- $1,000.00Invested at the start
- $1,200.00Year one: +20%
- $1,080.00Year two: −10%
The extra deposit
- Not investedNo first-year gain
- $1,000.00Added after year one
- $900.00Year two: −10%
$1,080.00+$900.00=$1,980.00
See how the two deposits create a $20 loss
See the account balances at each date
| Observation | Account value |
|---|---|
| 1 Jan 2025 · opening investment | $1,000.00 |
| 1 Jan 2026 · after the 20% gain, before the deposit | $1,200.00 |
| 1 Jan 2026 · add the extra $1,000 | $2,200.00 |
| 1 Jan 2027 · after the 10% loss, final valuation | $1,980.00 |
02 / Separate performance from contributions
TWR links the investment returns.
Time-weighted return measures each period’s investment performance, then compounds the returns. A deposit does not count as a gain. Picture $100 following the same +20%, then −10% path with no added money.
Annualized TWR: √1.08 − 1 = 3.92% per year.
Connect the diagram to the account balances
Year one: $1,200.00 ÷ $1,000.00 − 1 = 20.00%.
Year two starts after the deposit: $1,980.00 ÷ $2,200.00 − 1 = −10.00%.
The contribution changes the money invested, but the observed return path is still +20% followed by −10%.
03 / Include when your money was invested
MWR describes the cash-flow experience.
A money-weighted measure includes the size and timing of contributions and withdrawals. This illustration uses an internal rate of return (IRR): the constant annual rate that makes the present value of money invested equal the present value of the final account.
Contribution after year one
The investments gained. Your total dollars lost.
More money was exposed to the losing year. Despite the positive TWR, the annual IRR-based MWR is -0.67%. Neither number is wrong; they answer different questions.
Inspect the discounted cash-flow equation
Let r be the annual IRR. Outgoing investments are negative; the ending account value is a positive terminal value, whether or not you actually liquidate it.
−1,000 − 1,000 / (1 + r) + 1,980 / (1 + r)² = 0
Multiply by (1 + r)². With x = 1 + r, x² + x − 1.98 = 0. The positive root is x = (−1 + √8.92) / 2, so r = x − 1. The displayed rate is rounded; the calculation retains full precision.
04 / Read a real report with the convention in view
Check the question, period and method.
- What is being measured?
- TWR isolates the investment-return path from external cash-flow timing. MWR reflects the investor’s cash-flow experience. Neither alone describes risk or proves skill. A cash transfer into the measured account is an external flow; buying a stock with cash already inside that account is not an external deposit.
- Which period and annualization?
- Our TWR is 8% cumulatively from 1 January 2025 to 1 January 2027. Its annual equivalent is approximately 3.92%. Our IRR-based MWR is already an annual rate over those same two years. The chart compares annual rates, not an annual MWR with a two-year TWR. Other report periods and day-count conventions can produce different figures.
- Which money-weighted method?
- This lesson uses an IRR equation for two deposits on fixed dates. IBKR’s PortfolioAnalyst whitepaper describes Modified Dietz for its money-weighted calculation. Modified Dietz uses time-weighted cash flows and is not the same calculation as IRR. Our illustration does not reproduce or reconcile the MWR shown in your IBKR report.
- Which cash-flow and valuation convention?
- The extra contribution lands immediately after the first year’s valuation and before any second-year return. All money is invested immediately in the same return path. We know both sides of the flow, so no valuation is estimated. A real account needs consistent valuations and the report’s actual beginning/end-of-day treatment.
The displayed money and rates are rounded for reading. The fixed equations use unrounded values. This is a bounded lesson, not a general TWR, MWR or XIRR calculator: it does not accept arbitrary transactions, missing valuations or other cash-flow patterns.
IBKR’s annual performance methodology also notes that large flows can reduce Modified Dietz’s accuracy. A disagreement between two tools therefore needs a method check before it becomes a performance claim.
05 / Recover one period’s return
From cumulative returns to one period’s return.
Two cumulative TWR figures from the same series can show the return between their end dates. They must share the same start date, currency, fee and distribution conventions, with no break in the series.
Period return = (1 + later cumulative return) / (1 + earlier cumulative return) − 1. Enter percentages as decimals; the earlier growth factor must not be zero.
In our fictional example, cumulative TWR is +20% after year one and +8% after year two. The second-year return is 1.08 / 1.20 − 1 = −10%. Subtraction gives −12 percentage points, not a −12% return.
The same logic can recover a weekly return from two comparable year-to-date (YTD) figures. Use the report’s cash-flow-adjusted TWR series, not account-balance changes. Do not use annualized figures or MWRs recalculated over different periods. Rounded inputs give an approximate answer.
This formula rearranges the geometric-linking equation in the GIPS Standards Handbook. It does not validate a provider’s reporting method.
06 / Compare with a benchmark
Three checks before comparing with an ETF.
- 1. Match the return comparison.
- Compare TWR with a benchmark total return that includes dividends, over the same dates and in the same reporting currency. Use cumulative figures on both sides, or annualized figures on both sides. For daily comparisons, check when each return starts and ends. Different market closing times can make two “daily” figures cover different hours.
- 2. Replay the external cash flows separately.
- For an illustration with no securities transferred in or out, start a hypothetical ETF portfolio with the same opening value. Repeat external deposits and withdrawals on the same dates and for the same amounts, not individual stock trades.
- 3. Make the assumptions visible.
- State when deposits are invested, whether dividends are reinvested, and how cash, fees and taxes are treated. Compare final values in one currency. The difference is a money amount, not an MWR rate or a risk comparison.
This is a method checklist, not a portfolio simulation available in PerfectPerf. Non-cash transfers need their own valuation treatment.
Download the portfolio benchmark worksheet (PDF, 1 page) to record your comparison settings, external cash flows and assumptions. Print it and fill it in by hand; no account or email is needed.
A stock comparison is a different question.
Our position-versus-ETF guide compares one holding’s allocated costs, sale proceeds and remaining value against a stated alternative. Those cumulative position returns are neither whole-portfolio TWR nor MWR. Adding them, or averaging their percentages, does not reconstruct an account return.
A portfolio measure must also account for cash, the other positions, external flows and valuation timing. PerfectPerf’s current focus is position-level comparison. Whole-portfolio analysis is planned; this educational guide does not announce an available global-analysis feature. The free audit is still being built.
Sources and reproducible assumptions
PerfectPerf created this synthetic scenario and its equations. The sources explain the return concepts and IBKR conventions; they do not endorse this illustration or its fictional returns.
- CFA Institute: GIPS Standards Handbook for Firms, calculation methodology. Definitions of geometrically linked TWR and IRR-based MWR. This educational page makes no claim of GIPS compliance.
- Interactive Brokers: PortfolioAnalyst whitepaper, “Money Weighted Return and Time Weighted Return,” pages 12–14. Geometric linking, external flows and Modified Dietz.
- Interactive Brokers: Annual performance reporting methodology. Money-weighted reporting, flow weights and approximation limits.
- Portfolio Performance: Benchmarking. Matching periods and the effect of fees and dividends when choosing a comparison. Benchmark checklist source checked 18 October 2026.
Return-method sources checked 17 October 2026; geometric-linking source rechecked 18 October 2026. Educational illustration; no investment, deposit timing or trading strategy is recommended.