Article hero image

Why Is It Important to Know the Difference Between "Time-Weighted" and “Money-Weighted" Returns?

Wealthsimple makes powerful financial tools to help you grow and manage your money. Learn more

Get the best stories from our magazine every month

Sign up for our email newsletter

This is the latest installment of our “Ask Wealthsimple" series, where our financial guru Dave Nugent helps you navigate the world of investing.

Dave, it’s time to have a very sexy conversation. Apparently there’s a lot of confusion out there about the difference between something called time-weighted returns and another thing, called money-weighted returns. Are you stoked for some financial talk?


Sounds it! Well, my first question is why do the bosses want us to talk about this particular thing right now?

It’s actually a timely conversation. For the last number of years, it has been standard for Canadian investment professionals to show their returns as time-weighted. But, in case you haven’t heard, there’s been some regulatory reform in the industry. So come January, all investment firms must begin showing their returns as money-weighted. Which means people are wise to know what the heck that means.

Before we get into the nitty-gritty, let’s start with basics. What’s a return?

A return is the amount of money earned or lost on an investment. Annual returns are usually shown as a percentage on your statements. Let’s say you start the year with $100, and at the end you have $110; that would mean you have a 10% return on your money.

OK, I’m with you so far. But what are time-weighted and money-weighted returns? I Googled the terms, and it spit out a lot of really scary equations. I fear what I was looking at was calculus. Maybe we could come up with something I’ll understand better. Like maybe my account can be the Hunger Games lottery. I’ll be Katniss, and you can be Peeta, and the return models will be the districts of Panem.

That sounds fun, but I haven’t seen the movies! Here’s how to think about it in real terms. Time-weighted returns are simply the performance of an account over a certain period of time. Let’s take that same account. If you started the year with $100 in it, and you didn’t touch it, and at the end of the year had $110, that would be a 10% time-weighted return. But here’s the hitch: People don’t often just leave accounts alone. They make deposits and withdrawals over the year. Money-weighted returns take this into account and reflect the actual money you made or lost over the year.

Recommended for you

  • RRSP vs TFSA: What’s the Better Choice?

    Finance for Humans

  • Five Tax Traps — And How, If You Start Now, You Can Avoid Them

    Finance for Humans

  • Five Gloriously Silly Things To Do With Your Tax Refund

    Finance for Humans

  • Wealthsimple Explains: The Market Crashed! Should I Buy the Dip?

    Finance for Humans

Let’s go back to our example. Say you have your account with $100 in it, and over the course of the year you earn another $10. But now let’s say you deposited $100,000 into the account on December 30, and the market stayed flat? The time-weighted annual return could still be 10%, while the money-weighted return would be 2.7%.


Wealthsimple is a new kind of financial company

Invest, trade, save, spend, and even do your taxes in a better, simpler way.

inline cta

If you want to see this in action, check out your Wealthsimple account page—we show you both types of returns. If you simply deposited money on one occasion and left it there, those two graphs will be identical. But if you have made a lot of deposits and/or a lot of withdrawals, your money-weighted and time-weighted returns probably look extremely different. Now you know why.

Are there benefits to looking at your returns one way or the other?

If what you’re interested in is comparing the performance of different investments or money managers, time-weighted return is the relevant number. It clears out the noise made by deposits and withdrawals. But it’s not good for helping you understand how much money you actually made or lost. Take our example in which you deposited $100,000 on December 30, only pretend that the market went down that day. Your time-weighted return could still be 10% for the year, even though you actually lost money. So in that case, time-weighted returns don’t really provide you with information that’s all that relevant.

Here’s something I’m wondering but kind of afraid to ask: How are money-weighted returns actually computed? No math please.

OK. Back to our example. An investor has $100 in her account and doesn’t make any additional deposits or withdrawals for 364 days of the year, and invests $100,000 on the last day of the year. To come up with money-weighted return, the propeller heads will use a mathematical formula that puts a smaller weight on the longer time period when you had less money in your account and a heavier weight on the one day when you had more. If the market is flat on the one day when you have a lot of money in your account, your annual money-weighted rate of return is going to be 2.7%, a lot lower than 10% time-weighted rate of return.

I think I get it. I’m going to quit while I’m ahead.

That’s your call, Andrew. But I support it!

Wealthsimple uses technology and smart, friendly humans to help you grow and manage your money. Invest, save, trade, and even do your taxes in a better, simpler way.

Money Diaries


Margaret Atwood


Get the best stories from our magazine every month

Sign up for our email newsletter

  • Finance for Humans

    Our Four Step Plan to Investing in a Crappy Market

    And oh, it’s been crappy. It's easy to feel like an investing genius when the markets are going up. But how do you stay smart when markets are... not up?

  • Finance for Humans

    Nine Ways to Be Smart When the Market Goes Down

    Smart investors don’t try to avoid downturns, which are inevitable. Instead, they make sure they’re in a good place when the markets go back up. Because that’s inevitable, too.


    A new kind of financial company

    Invest, trade, save, spend, and even do your taxes in a better, simpler way.

    see-more cta
  • Finance for Humans

    Why Most Eco-Friendly Investment Funds Really Aren’t That Eco-Friendly

    There are a whole bunch of investment portfolios that claim to be socially responsible and environmentally benevolent. The trouble is that it’s super tough to pick a fund that delivers on its promises.

  • Finance for Humans

    Learn to Speak Crypto: Lesson Three

    In our third installment, we’ll learn about the possibility of a whole new (and some say much better) internet, and how to watch out for a common scam.


A new kind of financial company

Invest, trade, save, spend, and even do your taxes in a better, simpler way.

GET STARTEDright arrow icon

Our best stories, once a month.

Sign up for our newsletter

The content on this site is produced by Wealthsimple Technologies Inc. and is for informational purposes only. The content is not intended to be investment advice or any other kind of professional advice. Before taking any action based on this content you should consult a professional. We do not endorse any third parties referenced on this site. When you invest, your money is at risk and it is possible that you may lose some or all of your investment. Past performance is not a guarantee of future results. Historical returns, hypothetical returns, expected returns and images included in this content are for illustrative purposes only. By using this website, you accept our (Terms of Use) and (Privacy Policy). Copyright 2023 Wealthsimple Technologies Inc.