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What Is My Real Portfolio Return After Deposits and Withdrawals?

Short answer

Your balance going up is not the same as your investments earning a return. If you deposited money during the year, part of the increase is your own contributions; if you withdrew money, the balance understates what your investments did. A real return removes those cash flows. Time-weighted return measures how the investments performed regardless of when money came in or out, which makes it the fair way to compare against a benchmark. Money-weighted return reflects the timing of your own deposits and withdrawals, which shows how your particular cash flows worked out.

Many investors judge performance by comparing their balance now with their balance a year ago. That number mixes two different things: what your investments earned and how much money you added or took out. This page explains how to separate them, the difference between time-weighted and money-weighted return, which one to use for which question, and how to see your real return without building a spreadsheet.

Why the balance change misleads

Suppose a portfolio starts the year at $50,000, you add $10,000 during the year, and it ends at $62,000. The balance rose $12,000, but $10,000 of that was your own money. The investments earned roughly $2,000, a very different result from the 24% the balance change suggests. Withdrawals distort the same way in the other direction, making results look worse than they were.

Time-weighted return

Time-weighted return measures how the investments themselves performed, removing the effect of when money arrived or left. It splits the period at each deposit or withdrawal and links the returns of each sub-period together. Because it ignores the size and timing of your cash flows, it is the fair way to compare your portfolio with an index, a fund or other investors.

Money-weighted return

Money-weighted return, also called internal rate of return, reflects the timing and size of your own deposits and withdrawals. If you added a large sum just before a strong rally, your money-weighted return will be higher than your time-weighted return, and the reverse if you added just before a drop. It answers how your particular cash flows worked out, which includes the effect of your timing decisions.

Which one should you use?

Use time-weighted return to judge how your investments performed against a benchmark or against other investors. Use money-weighted return to understand what actually happened to your money, including the effect of when you added or withdrew. A large gap between the two is itself informative: it means your timing of cash flows helped or hurt.

Seeing your real return automatically

Pure Benchmarks, our own product, calculates performance from connected accounts with deposits and withdrawals separated from investment returns, including cash held in the account, so the number reflects what your portfolio earned rather than what you added. It ranks that result against verified investors in the same risk category, and its Decision Benchmark compares your actual portfolio with the do-nothing baseline to show whether your buy and sell decisions added value.

Your current platform won't show you how your portfolio ranks against real investors in the same risk category. Create your secure Pure Benchmarks account and see exactly where you stand.

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Frequently asked questions

How do I calculate my portfolio return with deposits?

Remove deposits and withdrawals from the change in balance. Time-weighted return does this by splitting the period at each cash flow and linking the sub-period returns together.

What is the difference between time-weighted and money-weighted return?

Time-weighted return measures the investments regardless of when money came in or out. Money-weighted return reflects the timing and size of your own deposits and withdrawals.

Which return should I compare to the S&P 500?

Time-weighted return, because it removes the effect of your own cash flows and measures the investments on the same basis as an index.

Why does my brokerage show a different return than my own calculation?

Brokerages may report time-weighted or money-weighted return, may include or exclude cash and fees, and may use different start dates. Check which method and period the figure uses.

Is there a tool that shows my real return automatically?

Pure Benchmarks, our own product, separates deposits and withdrawals from investment returns in connected accounts. This page is information for comparison and not a recommendation about any holding.

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This page is an information baseline for comparison only. It is not investment advice and not a recommendation to buy, sell, replace, or transfer any specific asset, account, or firm. Past performance does not guarantee future results. All figures shown are illustrative.