Francisco Gomez Pastrana Alva @jgpastrana: "𝙏𝙒𝙍 𝙫𝙨. 𝙈𝙒𝙍: 𝙏𝙬𝙤 𝙒𝙖𝙮𝙨..."

Spain

𝙏𝙒𝙍 𝙫𝙨. 𝙈𝙒𝙍: 𝙏𝙬𝙤 𝙒𝙖𝙮𝙨 𝙩𝙤 𝙈𝙚𝙖𝙨𝙪𝙧𝙚 𝙋𝙧𝙤𝙛𝙞𝙩𝙖𝙗𝙞𝙡𝙞𝙩𝙮 When you invest, measuring your profitability is key because it allows you to assess the performance of your financial decisions, optimize strategies, and adjust your portfolio. But did you know there are different methods, and they can yield very different results? 👉🏻 Today, I’ll explain the differences between TWR (Time-Weighted Return) and MWR (Money-Weighted Return) in a simple way. Both methods aim to answer the same question: "What is my return?" But the way they do it is different: ✅ TWR (Time-Weighted Return): This method focuses on evaluating the performance of an asset or investment strategy regardless of any money you deposit or withdraw. It divides returns into periods and averages them, eliminating the impact of cash flows. ➡ Ideal for comparing fund managers or strategies, as it objectively measures an asset’s performance without investor cash flows affecting the calculation. This helps assess whether an investment strategy has been effective under different market conditions, making it easier to compare different managers or funds. ✅ MWR (Money-Weighted Return): This metric does take into account when and how much money you add or withdraw. Essentially, it represents the actual return you experience based on your capital management. ➡ Ideal for evaluating your own investment profitability, as it reflects the impact of your contribution and withdrawal decisions. 📌 EXAMPLE Imagine you invest in a fund, and in the first six months, it grows by 20%. Seeing this, you decide to invest more money, but in the next six months, the fund drops by 10%: You invest $ 10,000 at the start of the year. After six months, your investment grows 20%, reaching $ 12,000. You decide to add another $ 10,000, bringing your total investment to $ 22,000. Over the next six months, the fund drops 10%, reducing your capital to $ 19,800. Results: ✔ TWR: The year is divided into two periods, removing the impact of cash flows, showing a total return of approximately 8%. ✔ MWR: Since you invested more money before the drop, the impact is greater, and your final return is approximately -1%. ⚡ Conclusion: Which One Should You Use? Both metrics are important but measure different things: ✔ Use TWR when you want to evaluate the performance of an asset or compare fund managers without cash flows affecting results. ✔ Use MWR when you need to measure the actual return on your investment, considering the impact of your deposit and withdrawal decisions. $SPX500 (SPX500 Index (Non Expiry)) $EUSTX50 (EUSTX50 Index (Non Expiry)) $0700.HK (Tencent) $NVDA (NVIDIA Corporation)

4 Mentioned

SPX500

EUSTX50

0700.HK

Tencent

NVDA

NVIDIA Corporation

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