Money weighted return MWR money weighted return net return calculate return money investment calculate money weighted return

What is the money-weighted rate of return (MWR) and how can you calculate it?

The money-weighted return is a useful tool to track your personal investment performance. In this article you will learn what the money-weighted return means in detail, how you can determine themwhen it applies and which advantages and disadvantages it holds.

You'll also learn how money-weighted returns differ from other measures of return, such as simple and time-weighted returns. Are you ready to deepen your financial knowledge? Then let's get started!

Table of contents

What is the money-weighted rate of return (MWR)?

The money weighted return (MWR) is a method of calculating the return on an investment. It measures your investment experience as an investorby taking into account when and how much money you invested and at what point in time. Therefore, MWR is particularly useful when there are multiple cash flows and you are regularly depositing or withdrawing money.

sThe money-weighted return gives you a detailed picture of this, how good your personal investment decisions wereby including deposits and withdrawals and their timing in the calculation.

How can I calculate the money-weighted return?

Calculating the money-weighted return can seem complicated at first, especially when there are many cash flows. In this section you will learn a Step-by-step instructions for calculating the MWR which turns the complexity into a simple calculation. After the tutorial, you can experience the theory in practice with an example. Here is the guide to the Calculation of the money-weighted return in three steps:

  1. Identify the cash flows and time periods: First you need to define the cash flows (inflows and outflows) and the time period for each cash flow.
  2. Calculate the individual returns for each cash flow: In this step you have to calculate the individual return for each cash flow. You divide the final value of the investment by the initial value and subtract 1 from the result.
  3. Find the return that sets the net cash flow to zero: Now you need to find the rate of return that sets the net cash flow to zero over all periods. You can use the internal rate of return (IRR) function in a spreadsheet program. You can also use a calculator, but it is unnecessarily complicated, error-prone and inflexible.

If this seems too complicated or if you would rather save your time, you can use a Free tool like Portfolio Performance do this work for you.

Here is the practical calculation example:

You invest CHF 1,000 in a portfolio and after one month it is worth CHF 1,050. You decide to invest a further CHF 2,000 and at the end of the next month the entire portfolio is worth CHF 3,150.

The cash flows are therefore:

 

  • Month 1: Deposit CHF -1,000

  • Month 2: Deposit CHF -2,000

  • Month 3: Payment CHF +3,150

 

The correct equation is:

1000 + 2000 / (1 + r) = 3150 / (1 + r)^2

or after conversion:

1000 (1 + r)^2 + 2000 (1 + r) = 3150

Use the IRR/IKV function in Excel or Calc to obtain the solution:

 

  • r = 3.72 % per month

  • For the entire two-month period:

    (1 + r)^2 - 1 = 7.57 %

 

The money-weighted return in the example is therefore 7.6 % over two months.

Top recommendations for 2026

Your key to success! Discover our top recommendations from real testimonials.

Swiss bank account recommendation test experience report account
What is the money-weighted rate of return (MWR)? Calculate return & More! 1
ETF buy Switzerland recommendation savings plan exchange traded funds investing
Pillar 3a Comparison Recommendation Experience Report
Swiss Online Broker Recommendation Test Comparison
Bank account recommendation best Swiss bank account test

When is the money-weighted return useful?

Although the money-weighted return is more complex to calculate, it gives you a sA personalised view of your investments. Therefore, MWR is particularly useful in the following scenarios:

  1. Individual investment performance: If you invest or withdraw money at irregular intervals and in variable amounts, the money-weighted return is an excellent measure of the individual performance of your investments. It takes into account the timing and size of your cash flows and therefore gives you a clearer picture of the return on your individual investment behaviour.
  2. Comparison with benchmarks: You can also use MWR to evaluate your investment strategy against benchmarks. If your return is higher than that of a benchmark, it means that your investment strategy is better at the time of calculation. However, if your return is lower, you might want to rethink your investment strategy or make adjustments.
  3. Advice and financial planning: For financial advisors, the money-weighted return is an important indicator of the performance of their client portfolios. It helps to better understand and optimise clients' individual investment styles.
  4. Performance of funds: In fund management, MWR helps to assess the impact of inflows and outflows on a fund's performance.

 

Although the money-weighted return is useful, it also has its limitations, which you will learn about in the next section.

Advantages and disadvantages of the money-weighted return

The money-weighted return provides a Variety of advantagesHowever, it also brings Challenges with. Here are the main advantages and disadvantages:

Advantages:
  • Personalised performanceThe MWR is an excellent way to measure the individual performance of your portfolio. It takes into account not only the amount but also the timing of your investments.
  • Fund valuation: The money-weighted return is a useful metric to assess the success of a fund manager.
  • ComparabilityWith the MWR you can compare different investment strategies or asset managers.
 
Disadvantages:
  • ComplexityThe difficulty of calculating the MWR increases with the number of transactions. A suitable software can quickly fix this problem.
  • DistortionsA large deposit or withdrawal can create distortions. For example, if you invest a large amount of money at a time when market prices are high and pay out later when prices are low.

 

Now that you have learned about the advantages and disadvantages, you can see a direct comparison with other methods of calculating returns.

Comparison between money-weighted yield and other yield calculations

As already mentioned, the return on your portfolio is an important indicator of the success of your investment. In addition to the money-weighted return, there are other ways of calculating returns. Each method has its advantages and disadvantages. The two most common other calculation methods are the simple and the time-weighted return.

  • Money-weighted return vs. simple return (ER): The simple return, also called absolute return, is the easiest return metric to calculate. It is simply calculated as (final value - initial value) / initial value. However, the simple return does not take into account the timing and size of your deposits and withdrawals.

In the calculation example, the initial value is CHF 1,000 and the final value is CHF 3,150. The simple return in this case would be 5 %

(CHF 3,150 / (CHF 1,000 + CHF 2,000)) = 1.05 or 5 %).

  • Money-weighted return vs. Time-weighted return (TWR):

    The time-weighted return measures the pure portfolio performance, regardless of the time of the deposits.

     

    • Return in the first month:

      1050 / 1000 = 1.05 = 5 %

    • Return in the second month:

      3150 / 3050 = 1.0328 = 3.28 %

     

    The total return is calculated by multiplying the monthly factors:

    TWR = (1.05 * 1.0328) - 1 = 0.0844 = 8.44 %

Comparison of the results of all three yield calculation methods:

Our financial tips for 2026

"Intelligent people learn from the mistakes of others".

We have compiled our top selection for you from all our tests and experience reports:

Online broker comparison trading platforms comparison Swiss broker comparison test
Swiss bank account recommendation test experience report account
swiizerfranke ebook investment guide switzerland pdf download
Pillar 3a Comparison Recommendation Experience Report
Crypto Broker Switzerland Comparison Buy Bitcoin
swiss online finance course investing pensions online learning live calls swiss online finance course

Conclusion on the calculation and application of the money-weighted return

The Money-weighted return is a useful tool to measure the performance of your investments and calculate the net return.. However, it is important to use them in combination with other metrics and information to get the full picture.

After reading this article, you will have a better understanding of money-weighted returns and how to use them in your investment process. Investing requires patience, discipline and continuous learning, but with the right tools and information you can start on the path to financial success.

Do you have any other questions about the topic or are there any other financial topics you would like to discuss? Feel free to use the comment function!

4 responses

  1. An error has also crept into the presentation of the time-weighted return TWR.
    The two-month yield r2 is obtained by multiplying the interest factor of the first month a by that of the second month b and then subtracting 1:

    a = 1050/1000 = 1,05
    b = 3150/3050 = 1,032787

    r2 = ab - 1 = 8.4426%

    Reply

      1. Hello Eric, that looks good now!

        Only in the case of the simple return does the text not really fit the calculation. The latter is correct in principle, except that the minus one is missing.

        r2 = 3150/(1000 + 2000) - 1 = 5%

        In the description, however, it should somehow read like this:

        The sum of all incoming payments minus the sum of all outgoing payments equals the cash flow total.
        With this and the final value, the simple return for two months is then calculated as:

        r2 = (terminal value - cash flow total) / cash flow total

        Or remodelled:

        r2 = terminal value/cash flow total - 1

        The simple return per month r is then calculated as follows:

        r = root(1 + r2) - 1 = root(1.05) - 1 = 2.47%

        And of course the incoming and outgoing payments are included in the cash flow total in the simple return (only the timing is not).

        Best regards, Christian

        Reply

  2. The calculation of the money-weighted return MWR is unfortunately presented incorrectly.

    The equation to be solved is:

    1000 + 2000/(1+r) = 3150/(1+r)^2

    Or in the variant obtained by multiplying by (1+r)^2:

    1000 (1+r)^2 + 2000 (1+r) = 3150

    Both lead to the solution:

    r = 3.7155%

    In Excel or Calc, the same value r is obtained using the function for the internal rate of return IKV:

    r = IKV({1000;2000;-3150})

    And r is not the return for the two-month period, but the return for one period, i.e. for one month.
    The return r2 for the two-month period is calculated as follows:

    r2 = (1+r)^2 - 1 = 7.569%

    Reply
Write a comment

Your e-mail address will not be published. Required fields are marked with * marked.

Get your free
Investment Guidebook
receive!
No thanks.