1. What is Money Weighted Return?

Money Weighted Return (MWR), also known as Internal Rate of Return (IRR), measures the performance of an investment by accounting for the timing and size of cash flows. It represents the discount rate that makes the net present value of all cash flows equal to zero.

2. How Does the Calculator Work?

The calculator uses the MWR formula:

Where:

• \( CF_t \) — Cash flow at time period t
• \( MWR \) — Money Weighted Return (as decimal)
• \( t \) — Time period
• \( n \) — Total number of periods

Explanation: The equation finds the rate where the present value of all cash inflows equals the present value of all cash outflows.

3. Importance of MWR Calculation

Details: MWR is important for evaluating investment performance, especially when comparing portfolios with different cash flow patterns. It accounts for the impact of investment timing and amounts.

4. Using the Calculator

Tips: Enter initial investment, cash flows (comma separated), number of periods, and final value. Cash flows should include both contributions (positive) and withdrawals (negative).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between MWR and TWR?
A: MWR measures personal performance affected by cash flow timing, while Time Weighted Return (TWR) measures fund manager performance by eliminating cash flow effects.

Q2: When is MWR more appropriate than TWR?
A: MWR is better for evaluating personal investment decisions, while TWR is better for evaluating fund manager performance.

Q3: What are limitations of MWR?
A: MWR can be sensitive to cash flow timing and may not accurately reflect manager skill when investors make large contributions or withdrawals.

Q4: How often should MWR be calculated?
A: MWR is typically calculated at the end of investment periods or when significant cash flows occur.

Q5: Can MWR be negative?
A: Yes, MWR can be negative if the overall investment results in a loss, considering the timing of all cash flows.