Time-Weighted Rate of Return

外汇网2021-06-19 16:35:16 223

A measure of the compound rate of growth in a portfolio. Because this method eliminates the distorting effects created by inflows of new money, it is used to compare the returns of investment managers.

This is also called the "geometric mean return," as the reinvestment is captured by using the geometric total and mean, rather than the arithmetic total and mean.

Taobiz explains Time-Weighted Rate of Return

It is assumed that all cash distributions are reinvested in the portfolio and the exact same periods are used for comparisons. When calculating time-weighted rate of return, the effect of varying cash inflows is eliminated by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period.

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