Portfolio Performance Calculation Methods Explained
Understanding how your portfolio performance is calculated is crucial for evaluating investment success.
Time-Weighted Return (TWR)
Best for: Comparing manager performance
TWR eliminates the impact of cash flows, showing pure investment performance.
Formula: Links sub-period returns geometrically
Use when: Comparing to benchmarks or other managers
Money-Weighted Return (MWR/IRR)
Best for: Understanding your actual experience
MWR accounts for the timing of your contributions and withdrawals.
Use when: Evaluating your personal investment outcome
Which Should You Use?
| Scenario | Recommended Method |
|---|---|
| Comparing managers | TWR |
| Personal goal tracking | MWR |
| Regulatory reporting | Usually TWR |
| Client reporting | Both |
BOFFO Performance Reporting
BOFFO calculates both TWR and MWR automatically:
- Daily return calculations
- Automatic cash flow detection
- Benchmark comparisons
- Period-over-period analysis