Time-Weighted vs Money-Weighted Returns for Crypto Investors

Time-weighted vs money-weighted return: one measures the asset, the other your timing. See both calculated on one crypto example and learn which to use when.

Why can one portfolio have two different returns?

When you add or withdraw money, “what was my return?” has two honest answers. One describes how the investment performed per dollar over time, no matter when you added money. The other describes how your actual dollars did, including the effect of when you added them. The first is the time-weighted return, or TWR. The second is the money-weighted return, or MWR, usually calculated as an internal rate of return (IRR).

The CFA Institute’s curriculum lists comparing these two measures, and evaluating portfolios with them, as a learning outcome. The GIPS standards, the investment industry’s performance-reporting rules, require firms to present time-weighted returns unless specific conditions are met, such as the firm controlling cash flows into closed-end, fixed-life or illiquid funds. The logic is simple: a manager does not decide when clients add money, so the manager’s result should not depend on it. You, however, do decide when you add money.

Worked example: adding money after a rally

Suppose you buy $3,000 of Token X on January 1. By mid-year it is up 50%, so the holding is worth $4,500. Encouraged, you add $9,000, bringing it to $13,500. In the second half, Token X falls 30%, and you finish the year at $9,450.

Time-weighted return

Split the year at each cash flow, work out each sub-period’s return, then chain them:

• First half: $4,500 ÷ $3,000 − 1 = +50%
• Second half: $9,450 ÷ $13,500 − 1 = −30%
• TWR: 1.50 × 0.70 − 1 = +5.00%

The deposit does not affect this number. Your original $3,000, left alone, would have grown to $3,150, the same +5%.

Money-weighted return

You put in $12,000 and ended with $9,450, a loss of $2,550. The MWR is the single annual rate r that balances your cash flows:

• 3,000 × (1 + r) + 9,000 × (1 + r)^0.5 = 9,450

Solving gives r = −32.14%. The quicker Modified Dietz approximation, gain ÷ (starting value + time-weighted deposits), gives −2,550 ÷ (3,000 + 9,000 × 0.5) = −34.00%, close enough for a sanity check.

Same coin, same year, two answers: +5.00% and −32.14%. Both are correct. The token finished slightly up; your money did badly because most of it arrived just before the fall.

The reverse case: adding money after a drop

Now run the path the other way. Token X falls 40% in the first half, so your $3,000 becomes $1,800. You add $9,000, making $10,800, and it then rallies 60% to finish at $17,280.

• TWR: 0.60 × 1.60 − 1 = −4.00%
• MWR: 3,000 × (1 + r) + 9,000 × (1 + r)^0.5 = 17,280, so r = +76.94%

The asset lost 4% over the year, but your money gained $5,280, because most of it went in near the low. Investors who follow dollar-cost averaging see this effect in both directions over time; no schedule can promise which one you get.

Which return should you use?

The decision rule: if you ever add or withdraw money, report both numbers. When they diverge sharply, cash-flow timing, not the asset, explains the difference. Our guide to tracking DCA performance applies this to regular buying.

How to calculate each from your own records

Time-weighted return

1. Record the portfolio value just before every deposit or withdrawal.
2. Work out each sub-period’s return: ending value ÷ starting value after the previous cash flow − 1.
3. Multiply the (1 + return) factors and subtract 1, the same multiplier habit explained in our guide to percentage gains and losses.
4. For periods longer than a year, annualize the result with CAGR.

Money-weighted return

1. List every cash flow with its date: deposits as negative numbers, withdrawals and the ending value as positive.
2. Use a spreadsheet’s XIRR function, or solve the IRR equation, to find the annual rate that balances them.
3. Sanity-check with Modified Dietz: gain ÷ (starting value + each deposit × the fraction of the period it was invested).

Use values after fees throughout, as in our guide to crypto profit and loss. Transfers between your own wallets are not cash flows if you are measuring the whole portfolio, so leave them out.

Warning: Many apps show a simple return: total gain ÷ total deposits. In the first example that is −$2,550 ÷ $12,000 = −21.25%, which is neither a TWR nor an annual MWR. It ignores when the money arrived, so it cannot be compared across periods or with a coin’s return.

Common mistakes with personal return math

1. Using simple ROI when money came in more than once. The crypto ROI formula works well for a single purchase held to a single end date. Once you add or withdraw money along the way, switch to TWR, MWR or both.
2. Leaving out withdrawals. Money you took out is a positive cash flow. Dropping it makes your money-weighted return look worse than it was.
3. Missing values at cash-flow dates. TWR needs the portfolio value at the moment of each deposit or withdrawal. With only month-end values, you have to approximate each month’s return, for example with Modified Dietz, and a deposit must never be counted as a gain.
4. Annualizing very short periods. A 10% gain over two months annualizes to 77.16%, which says more about compounding math than about the investment. Report short periods as they are.
5. Blaming or crediting the coin for your timing. If your MWR trails the coin’s quoted return, the gap reflects when your money went in, not how the coin performed.

The bottom line

Time-weighted return tells you how the investment performed; money-weighted return tells you how your dollars did once your timing is included. Use TWR to compare assets and strategies, MWR to judge your own experience, and read the gap between them as the cost or reward of your timing.

This content is for education only and is not financial, investment, tax or legal advice. Crypto assets are volatile and you can lose money. Examples use hypothetical numbers. See our disclaimer and editorial policy.