 # Money-Weighted Rate of Return Calculator (with Excel Sheet)

Are you looking for a simple way to track how your investment portfolio is performing?

You’ll need to determine your money-weighted rate of return (MWRR), also known as the internal rate of return (IRR). This is the annualized rate of return of your portfolio taking into account your personal contributions and withdrawals.

However, manually calculating your investment portfolio’s money-weighted rate of return is not a trivial task. This money-weighted rate of return excel calculator is an easy-to-use tool that takes the headache out of performance tracking and keeps you up-to-date with your portfolio returns.

## How To Use The Money-Weighted Rate of Return Calculator

Using the money-weighted rate of return excel calculator is straightforward.

Here’s what you’ll need to fill in:

• The starting value of your portfolio, along with the starting date
• The ending value of your portfolio, along with the ending date
• The value of any contributions or withdrawals made in the account, and the dates that they were made

These inputs correspond to the light gray cells in the excel calculator, as shown below. And that’s it! In the example above, the calculator outputs a money-weighted rate of return of 9.90%.

(Note that if the period is less than one year, it will display the actual rate of return.)

## Understanding Your Money-Weighted Rate of Return

The money-weighted rate of return (or internal rate of return) is the discount rate that makes the net present value (NPV) of all cash flows equal to zero.

This benchmark value is the equalizer of all investment opportunities and it allows you to compare the rate of return of various investment opportunities, whether it be in the stock market or physical real estate, whatever the investment project might be.

Using technical jargon might seem confusing, so here’s an easier way to understand the MWRR.

Think of the money-weighted rate of return to an investment portfolio like the interest rate is to a savings account.

That is, the MWRR could be thought of as the constant rate of return required, given the specified cash flows into and out of the account, to lead to the final investment value.

Compare two accounts, one being a savings account with a 5% interest rate and another being an investment portfolio with a 5% money-weighted rate of return. If both accounts have the same starting value and made the same deposits and withdrawals at the same times, then the final value of these accounts at the end of the period would be equal.

As you can see, this metric gives you an easy way to compare the performance of different types of investments.

## Money-Weighted Rate of Return vs. Time-Weighted Rate of Return

Your portfolio’s money-weighted rate of return is dependent on your specific situation because it takes into account the effects of your individual deposits and withdrawals.

This is in contrast to the time-weighted rate of return (TWRR), which only considers the performance of the underlying stocks and equities that make up your portfolio irrespective of your own personal contributions and withdrawals from the account.

Think of the TWRR as your rate of return if you did not make any deposits or withdrawals during the period, or the rate of return of the “1st dollar” invested into the portfolio. In contrast, think of MWRR as the “actual” rate of return including the impacts of any deposits and withdrawals.

How do the timing of your cash flows affect the rate of return? Here are some possible scenarios:

• If a large deposit is made and the portfolio subsequently increases in value, the gain impacted the portfolio more, so the money-weighted rate of return > time-weighted rate of return
• If a large deposit is made and the portfolio subsequently decreases in value, the loss impacted the portfolio more, then the money-weighted rate of return < time-weighted rate of return
• If a large withdrawal is made and the portfolio subsequently increases in value, the gain impacted the portfolio less, so then the money-weighted rate of return < time-weighted rate of return
• If a large withdrawal is made and the portfolio subsequently decreases in value, the loss impacted the portfolio less, then the money-weighted rate of return > time-weighted rate of return
• If there were no deposits or withdrawals made during the period, then the money-weighted rate of return = time-weighted rate of return

Therefore, two investors could invest in the same portfolio allocation and have the same TWRR but have drastically different MWRRs. That’s why to calculate your personal rate of return, you should determine your MWRR.

Have any questions about the money-weighted rate of return or the calculator? Feel free to let me know in the comments below.

6 Responses
1. John

Thanks for your Excel Sheet, I try it running on a month to month basis and for some months doesn’t work, I couldn’t figure out why?

Thanks

2. Rick Mott

Thank you for this. I had been struggling with the idea of “time-weighted return” which I understand is how mutual funds compute their published returns. The problem I saw with TWR is it’s misnamed — it isn’t time weighted at all. It just chops up the period under consideration into intervals between deposits/withdrawals, computes their individual returns, and multiplies them. It’s a decent approximation if the deposits and withdrawals are small relative to the initial portfolio value and the intervals between them are short, but not otherwise. Example: you start with \$1k Jan. 1st, and after a month you have \$2k. Wow! 100% interval return! Then you contribute \$10k, and your portfolio stays flat for the rest of the year — zero interval return. TWR still says you had 100% return. Common sense says more like 9%.

MWRR fixes that because a big return early on won’t have undue influence on the final result. It seems much better for individual investors (at least those who aren’t day traders).

I imagine fund managers like TWR better because if they start a fund small and if it has a booming initial year, they can attract a lot of money and ride that initial success for quite a while, whereas small new funds with lousy early returns can be allowed to fade away quietly. Hence the Lake Woebegone effect — more (surviving) funds are above average. Color me cynical…

3. Martin

Using Excel 2016 and adjusting your example to January 2, from January 1 caused an “Invalid Date” to appear.

4. Anonymous

Great calculator. Very clear instructions, easy to use. Very helpful. Thank you

5. John H

hello and thank you for the very helpful calculator. Can this same spreadsheet be used without any changes to calculate the percentage return over multiple years? Even if there are monthly contributions and withdraws over the years? Thank you

1. Hi John,

If the length between the start and the end date is more than 1 year, than the calculator will output your annualized rate of return, as long as all withdrawals or contributions are made within the specified time period.

Hope this helps.