Time-Weighted Rate of Return

AAA

DEFINITION of 'Time-Weighted Rate of Return'

A measure of the compound rate of growth in a portfolio. Because this method eliminates the distorting effects created by inflows of new money, it is used to compare the returns of investment managers.

This is also called the "geometric mean return," as the reinvestment is captured by using the geometric total and mean, rather than the arithmetic total and mean.

INVESTOPEDIA EXPLAINS 'Time-Weighted Rate of Return'

It is assumed that all cash distributions are reinvested in the portfolio and the exact same periods are used for comparisons. When calculating time-weighted rate of return, the effect of varying cash inflows is eliminated by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period.

RELATED TERMS
  1. Compound Annual Growth Rate - CAGR

    The year-over-year growth rate of an investment over a specified ...
  2. Return

    The gain or loss of a security in a particular period. The return ...
  3. Annualize

    1. To convert a rate of any length into a rate that reflects ...
  4. Growth Rates

    The amount of increase that a specific variable has gained within ...
  5. Compound

    The ability of an asset to generate earnings, which are then ...
  6. Times Revenue Method

    A valuation method used to determine the maximum value of a company. ...
RELATED FAQS
  1. What average annual growth rate is typical for the banking sector?

    The banking sector plays an important intermediary role by channeling available funds for productive uses in the economy ... Read Full Answer >>
  2. What level of annual growth is common for companies in the Internet sector?

    The Internet services sector consists of a diverse group of companies that exhibit strong growth potential. Investors often ... Read Full Answer >>
  3. What are the drawbacks of a small investor buying blue-chip stocks?

    Blue-chip stocks are generally safer for investors. However, their drawbacks for small investors include moderate growth ... Read Full Answer >>
  4. What is the difference between Book Value Of Equity Per Share (BVPS) and book value ...

    There is no difference between book value of equity per share (BVPS) and book value over equity. The equation for a company's ... Read Full Answer >>
  5. How do I calculate the rule of 72 using Matlab?

    In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >>
  6. What is the smallest amount of shares I can buy?

    There is no minimum amount of shares that need to be bought in a single transaction, so an investor can purchase as little ... Read Full Answer >>
Related Articles
  1. Retirement

    Projected Returns: Honing The Craft

    Find out how to forecast long-term returns on the three major asset classes.
  2. Mutual Funds & ETFs

    5 Ways To Measure Mutual Fund Risk

    These statistical measurements highlight how to mitigate risk and increase rewards.
  3. Fundamental Analysis

    A Guide To Global Investment Performance Standards

    Is your investment management firm GIPS compliant? Learn more here.
  4. Trading Systems & Software

    Backtesting: Interpreting The Past

    We offer some tips on this process that can help refine your current trading strategies.
  5. Fundamental Analysis

    Gauge Portfolio Performance By Measuring Returns

    Calculate returns frequently and accurately to ensure that you're meeting your investing goals.
  6. Investing

    is It Wise To Copy Warren Buffett's Investment Strategy?

    Buffett has proven to be one of the most astute investors of all time. Can you emulate his success?
  7. Investing

    5 Great Investors Who Aren't Warren Buffett

    Here are five other investors, not named Warren Buffett, that are also considered to be the best of the best in the industry.
  8. Economics

    Explaining Growth Rates

    Growth rate refers to the amount a specific variable or measure has grown over a specified time, whether related to one company or an entire economy.
  9. Investing

    Strategies To Trade The Nasdaq Index

    The Nasdaq is by far the best-known technology index in the world, and there are plenty of strategies to trade on the Nasdaq using ETFs and options.
  10. Economics

    How to Calculate Sustainable Growth Rate

    Sustainable growth rate is the rate at which a company can grow without having to borrow money to fund its growth.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!