TTWROR -- Time-Weighted Rate of Return

TTWROR answers the question: how did my investment decisions perform, regardless of when I added money? It chains together sub-period returns, with each period reset after a cash flow, so large deposits at lucky moments do not artificially inflate -- or deflate -- the result.

How It Is Calculated

The portfolio is divided into sub-periods at each cash flow event (deposit, withdrawal). For each sub-period, the return is calculated as:

Sub-period return = (End Value) / (Start Value + Inflows at start) - 1

These sub-period returns are then compounded:

TTWROR = (1 + r1) × (1 + r2) × ... × (1 + rn) - 1

Why It Matters

TTWROR is the standard used by professional fund managers and the CFA Institute's Global Investment Performance Standards (GIPS). It lets you compare your portfolio's performance against a benchmark or index on equal footing -- because neither side is penalized or rewarded for the timing of capital flows.

TTWROR vs. IRR

• TTWROR isolates investment skill. Use it to compare yourself against a benchmark or another manager.
• IRR accounts for cash flow timing. Use it to measure your personal financial outcome, including whether you deployed capital at good times.

A high TTWROR but low IRR often means strong stock selection but poor timing of deposits. The reverse -- low TTWROR, high IRR -- can mean you happened to deploy large sums before strong runs.