← Glossary
Time-weighted return
Your return with deposits and withdrawals taken out — what your investment choices did.
Time-weighted return cuts the period at every deposit and withdrawal, measures the return of each piece on its own, and chains them: (1 + r₁) × (1 + r₂) × … − 1. Up 10% and then down 10% is 1.10 × 0.90 − 1 = −1%, however much money you added between the two.
Because the timing and size of your own cash flows drop out, it is the number to set against a benchmark such as the S&P 500, which has no deposits at all.