A gain or loss on an investment over a specified period, presented as a percentage.
The calculation traditionally used by the investment industry that is suitable for comparing your portfolio’s return to a benchmark.
Canadian securities regulators now require that firms provide investors with a money-weighted rate of return, which is suitable for comparing to the rate of return used in long-term wealth projections.
Each method is appropriate for different purposes
Measures the return of a single investment amount or benchmark.
Excludes the impact of your deposits and withdrawals.
Found in newspapers and your account statements from some fund companies.
Measures your personal rate of return.
Influenced by the timing and size of your deposits and withdrawals.
By early 2017, all investors in Canada will receive a new annual performance report from your investment dealer or broker that reflects your personal rate of return.
The following is an example of the performance of one investment fund and three different investors. See how transactions impacted their money-weighted returns.
Buying more of an investment that has underperformed or selling it after it has outperformed may cause the MWR to be higher than the TWR.
Sarah bought more units at a lower price in March, resulting in better performance on her personal return (MWR) than the investment (TWR).
Buying more of an investment that has performed well or selling when it has underperformed may cause the MWR to be lower than the TWR.
Jonah bought more units at a higher price in June, resulting in a weaker performance on his personal return (MWR) than the investment (TWR).
Buy and hold strategies that eliminate cash flows during the measurement period make the TWR and MWR equal.
Ken held his original unit position, resulting in the same performance on his personal return (MWR) as the investment (TWR).