Lesson 5 of 8 · 13 min
Money-weighted return
The money-weighted return is the IRR of the investor's own cash flows: what the investor actually earned, given when and how much money went in and out.
In short
- Arithmetic and geometric means ignore how much money was invested when. The money-weighted return (MWR) does not.
- MWR = internal rate of return (IRR): the rate that makes the present value of all cash flows zero.
- From the investor's view, deposits are outflows (−); withdrawals, cash income and the ending value are inflows (+).
- Periods with more money invested get more weight, so the MWR leans toward their returns.
- It is investor-specific: two investors in the same fund can have different MWRs.
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