Two returns, two questions
For the same portfolio and the same period you can calculate two different returns, and both are correct. They answer a different question. Time-weighted return (TWR) answers: how did my investments do? Money-weighted return (MWR, also MWRR) answers: what did I earn on my own money?
In both, deposits and withdrawals are not profit or loss. The difference is how much the timing of a deposit counts. How to calculate your result in euros is in Return with deposits.
Time-weighted return (TWR): the investments themselves
Time-weighted return cuts the period at every deposit and withdrawal. For each piece you take the growth factor: one plus that piece's return. You multiply those growth factors together and subtract one. StockQuarters does this per day: today's value divided by yesterday's value plus today's deposit.
So every period counts the same, whether little or much money was in it. When you added money makes no difference to the outcome. An index or a fund does not have your deposits, so with time-weighted return you compare the investments alone.
The downside: time-weighted return says nothing about your euros. It can be negative while you made money in euros, and the other way round.
Money-weighted return (MWR): your money
Money-weighted return divides your result in euros by the capital you had invested on average. Money that was in your portfolio for a long time counts more than money that was only in it briefly. A period with a lot of money invested weighs more than a period with little.
That is why the percentage always has the same sign as your result in euros. StockQuarters calculates the money-weighted return over a period with Modified Dietz, and the return per year with the internal rate of return (IRR, XIRR in Excel). Both calculations are worked out in Return with deposits.
Same investments, different timing
Take the same portfolio of €10,000 twice. Both times the investments fall 10.0% in the first half of the year and then rise 10.0%. Both times you deposit €10,000. Only the day differs: once you deposit on 2 January, before the fall, the other time on 1 July, after the fall.
The time-weighted return is -1.0% both times: the investments did exactly the same. The money-weighted return does differ. Deposit before the fall and your extra money falls too: your result is -€200, or -1.0%. Deposit after the fall and your extra money rises too: your result is +€900, or +6.0%.
The gap between the two percentages shows what the timing of your deposit did. Deposit at the start and they are close together. The larger your deposit compared with what was already there, and the more the value moves afterwards, the further apart they can be.
The amounts and percentages in the table below are calculated by this page with the same calculation functions as the app.
| Deposit on 2 January | Deposit on 1 July | |
|---|---|---|
| Value at the start | €10,000 | €10,000 |
| Deposit | €10,000 | €10,000 |
| Value at the end | €19,800 | €20,900 |
| Result in euros | -€200 | +€900 |
| Money-weighted return (MWR) | -1.0% | +6.0% |
| Time-weighted return (TWR) | -1.0% | -1.0% |
When to use which
Use time-weighted return to compare: with an index, with a fund, or with your own return in another year. It is also the fair measure of whether your choice of stocks or funds worked out, regardless of when you had money to invest.
Use money-weighted return to know how your own money did: what percentage you earned on what you put in, including the effect of when you deposited or withdrew. That is the percentage that belongs with your result in euros.
Funds usually report their return time-weighted, because the manager does not decide when investors buy in or sell out. If you set your own return beside a fund's, use your time-weighted return too.
How StockQuarters shows it
The percentage beside your result in euros is money-weighted, so the amount and the percentage always have the same sign.
On your dashboard chart and on the Analytics page you switch with the Money-weighted | Time-weighted toggle. Everything in that chart follows the toggle: the percentage over the period, the line and the index lines. On Money-weighted an index line shows what the same deposits and withdrawals would have earned in that index. On Time-weighted it is the time-weighted return of the index itself.
On the Analytics page the whole page follows the toggle: the returns per period, the return per calendar year and ‘average per year’. On Money-weighted that last one is the internal rate of return (IRR), on Time-weighted the compound annual growth rate (CAGR). You see it once you have at least a year of history. The columns that set your return per period beside an index are only shown on Time-weighted.
The return of a single position is neither: it is that position's result on what you paid for it. See what it looks like in the demo. How other trackers handle return and deposits is listed per tracker, with sources, in Best tracker for DEGIRO.