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I want to measure and evaluate the performance of my personal portfolio. However, I am concerned about confusion and miscalculation. Because when I calculate the time-weighted portfolio return rate in excel, I get different results from ready-made calculators on the internet(Sharesight). (0.91% my calculated / Sharesight calculated 0.95%) As of October 8, there was an inflow of money into the portfolio. More precisely, I increased the weight of a fund I had and bought more shares of it. I used the following formula for 8 October. {(end of day value - yesterday end of value - cash flow) / (yesterday end of value)} Other days i used a simple return formula. (End of day value / yesterday end of day value)-1

In this context, I have a few questions, which total return is more accurate mine or the calculator?

Is TWRR an accurate and standard method for calculating performance ratios such as the Sharpe ratio?

What method should I follow when I change portfolio weights and financial products in it? Is TWRR useful?

I will give all my portfolio and transactions works in the tables below. I will also give the prices of mutual funds. All prices and purchases were made at the end of the day. My entire portfolio consists of mutual funds and I have no cash at all. I would like your help, support, and feedback on the subject.

Date Portfolio Balance Return Rate %
5/10/2020 9986.026848 0
6/10/2020 10030.912448 0.004495
7/10/2020 10034.489485 -0.00036
8/10/2020 11023.35918 -0.0011
9/10/2020 11027.999195 0.000421
12/10/2020 11090.413861 0.00566
Date Fund Code Quantity Buy Price Amount
5/10/2020 AAA 44801 0.066962 2999.96
5/10/2020 BBB 22622 0.044203 999.96
5/10/2020 CCC 43327 0.069240 2999.96
5/10/2020 DDD 1400 1.419414 1987.18
5/10/2020 NNN 955 1.046031 998.96
8/10/2020 NNN 930 1.075157 999.90
Date Fund Code Buy Price
5/10/2020 AAA 0.066962
5/10/2020 BBB 0.044203
5/10/2020 CCC 0.069240
5/10/2020 DDD 1.419414
5/10/2020 NNN 1.046031
6/10/2020 AAA 0,067018
6/10/2020 BBB 0,044929
6/10/2020 CCC 0,069376
6/10/2020 DDD 1,421754
6/10/2020 NNN 1,063608
7/10/2020 AAA 0,067019
7/10/2020 BBB 0,044514
7/10/2020 CCC 0,069414
7/10/2020 DDD 1,426568
7/10/2020 NNN 1,068356
8/10/2020 AAA 0,067054
8/10/2020 BBB 0,044213
8/10/2020 CCC 0,069385
8/10/2020 DDD 1,418694
8/10/2020 NNN 1,075157
9/10/2020 AAA 0,067077
9/10/2020 BBB 0,044218
9/10/2020 CCC 0,069466
9/10/2020 DDD 1,419914
9/10/2020 NNN 1,074244
12/10/2020 AAA 0,067113
12/10/2020 BBB 0,044629
12/10/2020 CCC 0,069725
12/10/2020 DDD 1,432386
12/10/2020 NNN 1,086351
0
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I can't reconcile either calculation, but I can offer thoughts on how to measure return. Time-weighted return is useful for seeing how the underlying instruments performed regardless of when money came into or out of the portfolio. In other words, it removes biases from having more money invested in good times (and vice-versa). So if you want to see if you made good picks, then TWR is appropriate.

Money-weighted return is better for measuring the timing of your investments. If you strategically invested at a specific time to capture value, then money-weighted return is more appropriate.

Either is fine to use in a Sharpe ratio calculation, which is a comparative measure. It's pretty useless by itself, but is useful for comparing investments with different risks. In other words, Did you make good use of additional risk be increasing returns?

So if you're comparing your investments to, say, an index, then either is fine and tells you two different things - did you invest in the right thing (TWR) and did you invest at the right times (MWR).

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  • Thanks so much for your answer, it was very revealing for me. I think the TWR method suits me better. So what formulation should I apply for the TWR method when rebalancing the portfolio? Should I convert the entire portfolio to liquid and calculate it? And what is the NAV method, how can I apply it? I could not find any resources on the internet.
    – Clankk
    Dec 19 '20 at 18:04
  • For TWR you'd use the beginning and ending balance of each period that starts with a cash flow, so you'd have a raurn from 5/10 to 8/10 (NOT including the purchase on 8/10) and from 8/10 to 12/10 (including the purchase from 8/10). I don;t have the data anymore but I was getting a return of about 0.98%. I don't kniw what the "NAV method" is.
    – D Stanley
    Dec 21 '20 at 14:11

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