What is Money-Weighted Return (MWR)?
Money-weighted return or Dollar-Weighted Return, often referred to as MWR, is a performance measurement that considers all cash flows entering and exiting a portfolio. Unlike other methods of calculating returns, such as simple return or time-weighted return, MWR provides a comprehensive assessment of portfolio performance by taking into account both the size and timing of all cash flows within the portfolio, hence reflecting the true performance of your portfolio. MWR is sometimes referred to as Internal Rate Of Return (IRR) too.
Money-Weighted Return Formula
Money-Weighted Return is calculated by solving for a rate of return that equates the current portfolio value to the net present value or discounted value of all future cash flows. The equation reads
How to use Money-Weighted Return Calculator?
1. Initial Value Inputs
First step is to input your start date and initial investment value. This is the date and the amount when you started investing.
2. Cash Movements
Since money-weighted return calculation only uses these cash flows to estimate the value of internal rate of return, next is to input all your cash deposits and withdrawals into the investments.
To input a deposit, you just have to input the Cash Flows amount as positive number. On the other hand, if it's a withdrawal, just input the negative number.
3. Final Value
The Final Value section includes the final date and the final value of the investment. This can be your current investment value and today date.