Say you started the year with 10 million KRW, added another 5 million in June, and ended December with 18 million. What was your return? If you answer "(18 − 15) / 15 = 20%," you're only half right. There are two measurements, and they answer different questions — time-weighted return (TWR) and money-weighted return (MWR). This article lays out the difference and which one to use in practice.
Cut the timeline at every cash flow, then chain the sub-period returns together. The size and timing of deposits and withdrawals are ignored.
Where rᵢ is the return of the i-th sub-period (from the balance just after one cash flow to the balance just before the next).
The single rate that makes all cash flows plus the final balance solve to the same IRR (internal rate of return). If a large sum arrived at a good time, MWR looks good; if it arrived at a bad time, MWR looks bad.
Where CFᵢ is the cash flow at time i (deposits negative; withdrawals and the final balance positive).
Concrete example — start January with 10 million KRW, add 5 million in June, end December with 18 million (figures in millions):
| Date | Balance (before) | Deposit | Balance (after) | Period return |
|---|---|---|---|---|
| Jan 1 | 0 | +10 | 10 | — |
| Jun 1 | 8 | +5 | 13 | −20% |
| Dec 31 | 18 | 0 | 18 | +38.5% |
TWR: first half −20%, second half +38.5% → (1 − 0.20) × (1 + 0.385) − 1 = 0.80 × 1.385 − 1 = +10.8%
MWR: 10 million invested for a full year and 5 million for half a year grew to 18 million. IRR ≈ +18.5%
A 7pp gap between the two. Why?
The extra 5 million arrived just in time for the good second half (+38.5%), which pulled MWR up. TWR ignores the timing and size of deposits and looks only at per-period returns, so the −20% first half carries more weight in the average.
Deposit timing is often outside the investor's control (contributions with every paycheck, a lump sum when a bonus lands, and so on). TWR strips that influence out and measures pure trading and stock-picking performance. It is the standard used to evaluate fund managers.
MWR weights returns by how long the actual money was in the market. It gives the intuitive answer to "how much did I earn on the money I put in?" For an individual asking "how much did my wealth grow this year?", it's the more natural measurement.
| Measure | Question answered | Main use |
|---|---|---|
| TWR | How good was the trading itself? | Fund evaluation · manager performance |
| MWR (IRR) | How much did my balance grow? | Personal periodic investing · real-estate project finance |
With no cash flows, or very small ones, TWR ≈ MWR. They pull apart when:
Someone brags "I made +30% last year" — but that may just be an MWR of +30% from a big lump sum dropped near the bottom, while the TWR (actual stock/market performance) was +5%. Don't expect the same result next year. To separate luck from skill, look at TWR.
Multifolios records cash flows (purchase lots) in chronological order, a data model from which both measurements can be inferred.
The current display is designed around the individual investor's intuition (my balance vs my invested principal), so it follows the MWR pattern. Fund-grade TWR would additionally require per-trade-date period returns — a candidate for future expansion.
TWR answers for trading skill; MWR answers for your account balance. When cash flows land at volatile moments, the two diverge. To separate luck from skill, look at TWR; to know how much you actually gained, look at MWR (the Multifolios default).