Calculating Your Money-Weighted Rate of Return (MWRR)

[@JustinBenderCPM]

100% of KZbin revenues received by the Canadian Portfolio Manager channel have been donated to SickKids Foundation. If this video has helped save you a few dollars on fees or taxes, please consider donating a portion of your savings to SickKids Foundation: www.sickkidsfoundation.com/

[@Pieter2360]

Excellent explanation; much more clear than how this is explained in the CFA curriculum.

[@danielbarrett8560]

The best explanation of MWRR I have ever heard, thanks!

[@JustinBenderCPM]

@Daniel Barrett - Thanks!

[@romitbarat]

Amazing Illustration and discussion.

[@Kritikanbringer]

Does Excel actully deal correctly with the time/date input column?

[@chariscchi3140]

Thank you very much again as it helps me to understand more re calculating for the rate of return. May i ask you when it's Cash Portfolio, holding term deposits and Term Annuities, what would be the appropriate method to calculate the performance returns of this cash portfolio

[@YueZhangMusic]

Hi, I have a question. In Buster's case, what does a 1000 dollar withdrawal mean? Does it mean that he sold whatever amount of shares at the market price for 1000 dollar?

[@JustinBenderCPM]

@YueZhangMusic - Buster sold $10,000 worth of securities in his portfolio and withdrew the cash to spend.

[@YueZhangMusic]

@@JustinBenderCPM 10000 after fees?

[@stim178]

Let's say we adopt a practice of using Money weighted return, and then we recieved a substantial cash flow for one month causing performance to be skewed for the 1 year performance. For that skewed one month period, is it okay revert to time weighted return to capture the true performance...just for this time period?

[@stim178]

Basically can I flip flop the methods based on the substantial cash flows? Or do I keep consistent with one method?

[@JustinBenderCPM]

@stim178 - If you were using a monthly MWRR (i.e., chain-linking the monthly MWRR returns), switching to a TWRR for a single month would be fine. I'm not certain how it would work for a regular MWRR.

[@hishamalhashmi7394]

very clear when you watch the two videos

[@userm1207]

Hey Justin, if I calculate the MWRR per year, 2020, 2021, etc -> how with this MWRR of each year I can calculate my cumulative total return of all my portafolio since day 1? I have my personal portafolio and each month I make contributions Thanks in advance 🤗

[@JustinBenderCPM]

@Manuel Aguilar Barrera - If you add 1 to each of your annual returns, multiply these results together, and subtract 1, this will give you a cumulative return. For example, if your portfolio returned 10% in 2020 and 15% in 2021, the calculation would be: ((1 + 0.1) x (1 + 0.15)) - 1 = 0.265 or 26.5% (please note this is not an average or annualized return).

[@userm1207]

@@JustinBenderCPM Thanks for the answer! Following the example of a 26.5% cumulative return at year 2: If I want to obtain my average annualized return of that two years... This formula, it's correct? Average annualized return = (1+cumulative return)^(1/years)-1? In this example: (1+26.5%)^(1/2)-1=12.47%

[@boojiboy16]

I don't understand the point of MWRR. What can I do with the figure it calculates? I have an account that shows 15% growth using MWRR but ust 8% simply comparing nd value to initial. With the 8% figure I can compare the performance to other things such as savings accounts but the 15% figure??? it takes into account investment timing but can't predict when to invest. What do I use the 15% for??

[@vijayreddy301]

such an awesome teacher you are. liked and subbed

[@lh7766]

Can you calculate it using financial calculator ?

[@JustinBenderCPM]

@lh7766 - I think you can, but it's much more complicated than simply using Microsoft Excel.

[@skube]

Is it not a strange choice of the CSA to make MWRR the standard?

[@JustinBenderCPM]

@skube - I may be a bit cynical, but it is "convenient" that the MWRR cannot be accurately compared to the active strategies of most advisors/portfolio managers ;)

[@diana7676]

How do you do in numbers , apple

[@thechickenduck8377]

Why does the Excel tutorial on that XIRR function say the starting amount needs to be negative? (the one from Microsoft Help)

[@JustinBenderCPM]

@TheChickenDuck - The Excel tutorial is also technically correct, but if you make the starting values negative, you would need to make the ending values positive. As well, contributions would need to be entered as negative figures, while withdrawals would need to be entered as positive values. As this method is a bit confusing, I felt my method would make more sense to new investors.

[@thechickenduck8377]

@@JustinBenderCPM it does , and thanks so much for the insightful videos !

[@thechickenduck8377]

@Jack Durham maybe that’s because Americans love debt 😅. Thanks for the insight.

[@piranhaprofitsleo]

Hi Justin, can I check with you, regarding the XIRR formula in excel, if the dates are more than 1 year (eg 3 years), it would only calculate annualised returns right? How can I calculate my total returns? just simply x3 in this case?

[@JustinBenderCPM]

@Ming Jie Wan - Correct - if the measurement period is more than 1 year, the XIRR formula in excel will annualize the total return. To calculate a 3-year total return (using the annualized returns), simply add 1 to your annualized return, take this figure to the exponent of 3 (i.e. ^3), and subtract 1 from the end result.

[@piranhaprofitsleo]

@@JustinBenderCPM perfect. Thank you for your swift response! I've managed to calculate my accumulated total returns!

[@eduardodelagarza3318]

@@JustinBenderCPM Can you explain how to do it if the dates are just 2 or 3 days apart? Thanks!

[@asyrafsalman5808]

@@JustinBenderCPM Hello, just to clarify. By the same token, when dealing with more than 1 periods, the Time-Weighted Return calculations results in a cumulative % return figure right? Therefore we would need to annualize that first ((1+x)^(1/n)) before we compare that to the XIRR figure when comparing against the Money Weighted Return? Thanks!

[@legomgom]

Thanks for doing this, very clear! As a nerd I guess I would have loved to see the math in the same way you did for time weighted rate of return, but still thanks so much!

[@JustinBenderCPM]

@Kirkby - If you're interested in the detailed equations, they can be found in our white paper: www.pwlcapital.com/wp-content/uploads/2018/06/2015-07-10_PWL_Bender-Bortolotti_Understanding-your-portfolio-s-rate-of-return_Hyperlinked.pdf

[@legomgom]

@@JustinBenderCPM Wow that's an amazing white paper, thanks for doing that!!

[@micno2076]

Perfectly explained! Thanks!

[@shaikshb]

well articulated with examples. Thank you Justin.

[@okechukwuutazi9373]

Awesome video

[@dxelson]

How does this apply if I sometimes have cash on my brokerage account and my contributtions are actually cash deposits into the brokerage account to be invested in a later date? Ex: I deposit $3000 every 6 months (equivalent to $500/month), after I deposit this money slowly invest that money up to $500 per month, if i encounter a huge dip i may invest more than $500 or even all of the remaining cash. If i end up with no cash i just wait until the 6 months are up and repeat depositing $3000. I do this to reduce deposit fees, ideally i would invest monthly, but I rather pay fees twice a year than 12 times a year.

[@JustinBenderCPM]

@dxelson - It still applies the same way. Whenever you add cash to your brokerage account (whether you purchase anything with it), it should be included. The MWRR return will penalize you if you miss out on returns sitting in cash, and reward you if your lucky market timing avoids a market drop.

[@zacalhaj]

Excellent illustration

[@JustinBenderCPM]

@Zac Alhaj - We're glad you found it useful :)

[@lpgoog]

Excellent presentation! MWRR seems like an important consideration for investors especially when measuring their wealth advisor’s performance. Probably why they include it as part of the CRM2 year end statement. Here’s something I never read about: Question: What is the opportunity cost of the wealth advisor’s fee coming out of accounts? Example: Dividends and capital gains reinvested vs. systematically taking out fees from the firm/advisor. Seems costly over time even at 1%. Wouldn’t it be more prudent to pay an advisor separately and let investments compound at their maximum over time?

[@JustinBenderCPM]

@Ipgoog - To measure a wealth advisor's performance, an investor should generally use a TWRR (not a MWRR). Any fees are going to lower the portfolio return. If you pay them directly (instead of through the portfolio cash flow), you wouldn't be able to save as much to your portfolio (so the impact of fees on portfolio growth would presumably be similar in both scenarios).

[@lpgoog]

@@JustinBenderCPM Thx so much for taking the time to respond. 🙏 Excellent channel to say the least!

[@AurelioPita]

Great explanation. Many thanks. Subscribed.

[@dmehta3476]

Why don’t you help make a spreadsheet for retail investors where we can calculate stocks return With MWRR

[@JustinBenderCPM]

@D Mehta - There are already many existing MWRR calculators available online: wealthsavvy.ca/money-weighted-rate-of-return-calculator/

[@OscarWithC]

Great video!

[@bdvd]

Is there an easy way to find out what your portfolio was worth on a certain date? (I'm on Quest) Thanks for a great video, Justin!

[@JustinBenderCPM]

@Brett Davidson - Not that I know of - we're going to be releasing a video on the linked Modified Dietz Method, which may be easier to calculate if you can dig up at least monthly statements.

[@maximeleroux5286]

I still think Micahel should have been Gob, and Gob should have been Michael, cuz Michael is the smart one

[@JustinBenderCPM]

@Maxime Leroux - haha, good point! But Michael is the chicken of the family ... remember when he was afraid to ask out Sally Sitwell? kzbin.info/www/bejne/bX6ZhZqcarOmn80

[@Chris-ew9mh]

So if some of my Fidelity accounts have a +186% money weighted return for a 5 year period I must be doing something right! 😎

[@Kritikanbringer]

Keyword: "some"... ^^

[@tonythegreat4275]

I hate math but I love financial math

[@scooby7877]

This sounds like the same exact thing as IRR why do people make up multiple names makes no sense to me lol

[@jamesupton7555]

shouldnt of used excel