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Assume, I monthly invest a fixed part of my income. I strictly transfer this money to my broker account and never take money off (transfer-rule). There, I usually (but not always) immediately add to a long position in stocks.

Hence, as I follow this transfer-rule, I don't have as my own portfolio-manager control over money flows. Yet, I do have control over how much I go long and how much I keep in cash (and all other possible manoeuvres).

Is Money-Weighted-Return (MWR) or Time-Weighted-Return (TWR) the more accurate method to assess my performance as portfolio-manager? Why?

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  • I’d suggest this article as a start. In the end I suspect the answer is, it depends on the situation, the full time involved, the magnitude of the money.
    – JTP - Apologise to Monica ♦
    Commented Aug 16, 2021 at 11:48

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Time-weighted return measures the performance of your specific investment choices. is a measure of "what" you invested in rather then "when" or "how much". If you have a portfolio with only one stock (or a fixed blend of stocks), and you periodically buy more as you get income, your time-weighted return will be the same as if you bought all of the stock upfront.

Money-weighted return is a measure or your overall portfolio management performance. It is affected by when you invest (how well you time your investments) as well as what you invest in. It can be skewed if you have a larger amount invested during "good" times that "bad" times, so it can be less effective at measuring your choices of investments.

Neither is "better", they just highlight different aspects of investments. Use TWR if you want to measure the performance of your choices in a way that is not biased by how much is invested. Use MWR to measure both the choices and the timing of investments.

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