How do time weighted returns work?


For example, if I have $100 in an account on the 1st and then I deposit another $100 on the 15th, how is my TWR calculated for the month?

In: 3

If there are 30 days in a month, you had $100 balance at the end of the day for 14 of those 30 days, and $200 at the end of the day for 16 of those 30 days.

So it’d be $100 times 14/30, plus $200 times 16/30, which works out to $153.33.

Then you’d multiply $153.33 by whatever your interest rate is. If you have a 2.4% annual interest rate, divided by 12 months, you get 153.33 times 0.024 / 12, or about $0.31.

(Most financial accounts have much lower than 2.4% annual interest rate right now.)