Time-Weighted vs. Dollar-Weighted Returns: Why Both Matter for Your Investments
- Caserta & de Jongh, LLC
- 3 days ago
- 2 min read
When you look at your investment statement, it’s natural to focus on the performance number. But here’s something many investors don’t realize: there’s more than one way to measure returns—and the one you’re looking at may not tell the whole story.
Two common ways to measure performance are Time-Weighted Return (TWR) and Dollar-Weighted Return (DWR). They sound similar, but they tell very different stories about your investments.
1. Time-Weighted Return (TWR): The Investment’s Story
The time-weighted return measures how well the investment itself performed, regardless of when you invested or withdrew money.
Think of TWR as the fund manager’s report card—it shows the investment’s pure performance without being affected by the timing of your contributions or withdrawals.
2. Dollar-Weighted Return (DWR): Your Story
The dollar-weighted return measures how you personally did, based on the timing and amount of your contributions and withdrawals.
It’s sometimes called your personal rate of return, because it factors in your actual cash flows.
Why the Difference Matters
Here’s a simple example:
Year 1: A fund goes up 100%
Year 2: That same fund drops 50%
If you invested $10,000 at the start of Year 1 and didn’t touch it, your total return would be 0%—both the TWR and DWR would match.
But let’s say you waited until the end of Year 1—after the fund had already doubled—to invest your $10,000. When Year 2 brought that 50% drop, your personal return (DWR) would be -50%, even though the investment’s TWR over the two years would still be 0%.
Same investment, two very different results.
How to Use This Information
When you review an investment performance report or prospectus:
Check whether the return is time-weighted or dollar-weighted
Remember that TWR helps you compare investment managers or funds
Use DWR to evaluate your own personal investment experience
Both are valuable—just for different reasons.
The Bottom Line
Before asking, “Was this a good investment?” it’s worth asking, “Which return am I looking at—and what does it mean for me?”
Understanding the difference between time-weighted and dollar-weighted returns can give you a clearer picture of your portfolio’s performance and help you make better investment decisions going forward.
If you’re not sure what type of return you’re looking at—or what it means for your plan—that’s exactly the kind of thing we help with.
📞 Let’s talk—we’ll walk through your statement together and help you see both sides of the story.
Registered Representative of, Securities and investment advisory services offered through Hornor, Townsend & Kent, LLC. Registered Investment Adviser. Member FINRA/SIPC. 800-873-7637, www.htk.com. HTK does not offer tax or legal advice.
Caserta & de Jongh, LLC is unaffiliated with HTK.
For Educational Purposes Only – Not to be relied upon as financial, tax, or legal advice. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Past performance is not a reliable indicator of future results.
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