Money-Weighted vs Time-Weighted Return (MWR vs TWR): What Each Tells Your Family

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

Time-weighted return (TWR) measures how the investments themselves performed, stripping out the effect of when money went in or came out. Money-weighted return (MWR, also called dollar-weighted return or internal rate of return) measures what your own dollars actually earned, so the timing and size of your deposits and withdrawals change the result. Use TWR to judge a fund or a manager; use MWR to judge your own results, including your timing decisions.

For most families the two numbers are close. They split apart when large sums move at once, which is exactly what happens in households paid partly in RSUs: a vest, a sale to diversify, a bonus, or a down payment moves six figures in a single day.

Why the two returns diverge for families with RSU income

A family putting $2,000 a month into a 529 plan has small, steady cash flows. Their MWR and TWR will usually land within a fraction of a percent of each other, because no single deposit is large relative to the account.

A two-earner household in the Bay Area or Seattle earning $900,000 with a large share in company stock is different. Quarterly vests, a once-a-year sale of concentrated shares, or a lump sum parked in cash for months can each be larger than the existing portfolio. When a big deposit lands just before a drop, the fund can report a gain while the family’s account shows a loss. That is not an error in either number. They answer different questions.

How each return is calculated

Time-weighted return

Split the period into segments that start and end at each cash flow. Calculate the return of each segment on its own, then link them: multiply (1 + each segment’s return) together and subtract 1. Because every segment is measured on whatever balance happened to be there, the size of the deposit does not matter. A step-by-step version is in our guide on how to calculate time-weighted return.

Money-weighted return

MWR is the single annual rate that makes the starting balance plus every deposit, grown at that rate, equal the ending balance (with withdrawals subtracted). That is the definition of an internal rate of return. In Excel or Google Sheets, list each cash flow with its date (the starting balance and each deposit as negative numbers, withdrawals and the ending value as positive numbers) and use the XIRR function. Our walk-through on calculating money-weighted return shows the setup.

Worked example: one RSU sale, two very different results

Assumptions (illustrative, not a forecast): a married couple in San Jose, household income about $900,000, one spouse paid partly in RSUs. On January 1 their taxable brokerage account holds $200,000 in a diversified index fund. On July 1 they deposit $300,000 of proceeds from selling vested company shares. No other flows during the year. Two market paths:

The fund did exactly the same thing in both paths: 1.20 x 0.90 and 0.90 x 1.20 both equal 1.08, an 8.0% time-weighted return. What changed was when the family’s money arrived. In Path A, most of their money was invested only for the weaker half of the year, so they lost $14,000 even though the fund was up 8%. In Path B, the big deposit caught the stronger half and they made $76,000.

The 12-point gap between +8.0% and -4.0% in Path A is the cost of timing, and the 14-point gap in Path B is the benefit. Neither is a verdict on the fund.

Which number to look at, and when

• Judging a fund, adviser or model portfolio: use TWR and compare it with a benchmark of similar risk. A manager does not control when you add or withdraw money, so it would be unfair to credit or blame them for it. Fund fact sheets and most adviser performance reports show time-weighted figures for this reason.
• Judging your own results: use MWR. It answers “what rate did our money actually earn?” and it is the figure that lines up with the dollars on your statement.
• Judging your decisions: look at the gap. If your MWR trails the TWR year after year, your timing (holding RSU proceeds in cash, buying after run-ups, selling after drops) is likely costing you. If you want a manager’s number and yours on the same page, ask for both.
• Reading a 401(k) statement: many plan websites show a “personal rate of return” that reflects your contribution dates. That is usually a money-weighted figure, while the fund lineup page shows time-weighted fund returns. Check the footnote to see which one you are looking at before comparing them.

Common mistakes

• Firing a manager over a timing loss. In Path A above, the family’s return was negative, but the fund returned 8%. The fix there is a deployment plan for large deposits, not a new fund.
• Comparing your MWR with an index return. An index return is time-weighted. Comparing it with your own money-weighted return mixes two different measures.
• Letting fees hide in the comparison. Ask whether reported returns are gross or net of advisory and fund fees. Over years, a fee gap compounds. See how much to pay in investment fees.
• Forgetting taxes. Both TWR and MWR are usually shown before tax. In a taxable account, what you keep depends on where you live (next section).

After-tax results in California and Washington

Neither measure accounts for the tax on gains you realize. In California there is no lower rate for capital gains, so realized gains in a taxable account are taxed as ordinary income, at a top rate of 13.3% for 2025, which is the 12.3% top bracket plus a 1% tax on taxable income over $1,000,000 (FTB, 2025 rate schedules). Washington has no wage income tax in 2026, but it taxes long-term capital gains at 7% above a standard deduction of $278,000 for 2025, and 9.9% on taxable gains above $1,000,000 (WA DOR). Washington has also enacted a 9.9% income tax on AGI over $1,000,000 starting in 2028 (WA DOR). Two portfolios with the same TWR can leave very different after-tax amounts depending on how much gain each realized along the way.

What to document for your kids

The gap between your two returns is a record of your family’s decisions: when you sold company stock, how long you sat in cash, what you did in a falling market. Writing down why you made each large move, in a short note at the time, turns that record into something your children can learn from later. As Kevin Luu, co-founder of Bright Advisers, puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.”

Our Age Five Wealth Education work is built around that kind of documentation, and it fits naturally in a FamilyKnowledge® Library next to your investment policy.

Frequently asked questions

What is a dollar-weighted return also called?

A dollar-weighted return is the same thing as a money-weighted return. Mathematically it is the internal rate of return (IRR) of your cash flows. When dates are irregular, as they are with RSU vests and one-off deposits, the spreadsheet version is XIRR. All three names describe a return that gives more weight to periods when more of your money was invested.

Can TWR be positive while MWR is negative?

Yes. It happens when a large deposit arrives just before the investments fall, or a large withdrawal happens just before they rise. In the example above, the fund returned +8.0% but the family’s money-weighted return was about -4.0%, a $14,000 loss, because $300,000 went in right before a 10% drop.

Which return should an adviser report to our family?

Ideally both. Time-weighted return, net of fees and compared with a fitting benchmark, shows whether the portfolio was managed well. Money-weighted return shows what your family actually earned. A persistent gap between them is worth a conversation about how large deposits, such as RSU sale proceeds, are being put to work.

Next step

Pull your last three years of brokerage statements, list every deposit and withdrawal over $25,000 with its date, and run XIRR on them. Compare that figure with the time-weighted return on your performance report. If the gap is large, the question to work on is how your family deploys lump sums, which is part of our investment risk management work. The Tax & Wealth Assessment is there if you want a second look. This is general education, and the right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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