The return your money earned is the money-weighted return: it counts when you added money and when you took it out, so it measures your result, not the fund’s. The figure on a fund’s fact sheet is usually the time-weighted return, which deliberately ignores your deposits and withdrawals. Both are correct, and they can be far apart.
Here is how far.
Two sisters, one fund, one year
Ana and Bea own the same fund for the same calendar year.
The fund falls 20% in the first half and rises 25% in the second. Multiply it out, 0.80 × 1.25, and the fund ends the year exactly where it started. Its return for the year is 0%.
Ana starts with $10,000. On July 1, at the bottom, she adds another $10,000. Her $8,000 plus the new $10,000 is $18,000, and the second half’s 25% takes it to $22,500.
Bea starts with $20,000. On July 1, at the same bottom, she needs cash and takes $10,000 out. Her $16,000 becomes $6,000, and the second half’s 25% takes it to $7,500.
Same fund. Same year. Same 0%.
Ana put in $20,000 and has $22,500. She is $2,500 ahead.
Bea put in $20,000, took out $10,000, and has $7,500. She is $2,500 behind.
Why the balance doesn’t tell you
Ask Ana’s statement how she did and it shows a balance that went from $10,000 to $22,500: up 125%. Almost all of that is her own deposit. A balance counts saving as if it were return, which flatters anyone who adds money and punishes anyone who takes some out.
The fund’s own figure doesn’t tell her either. It says 0%, correctly, because the fund didn’t do anything. But Ana did: she added money at the bottom, and her dollars rode the recovery.
So there are three numbers for one person in one year: +125% (the balance), 0% (the fund) and the one she actually earned.
What’s the difference between time-weighted and money-weighted return?
Time-weighted return chains together the fund’s returns between each deposit and withdrawal, so the size and timing of the money don’t matter. It answers: how did the investment do? It’s the fair way to judge a fund manager, who doesn’t decide when you add money. That’s why fact sheets and benchmarks use it.
Money-weighted return gives each dollar weight for the time it was invested. It answers: what did my money earn? It’s an internal rate of return, the single rate at which everything you put in grows into everything you took out plus what’s left.
For Ana it’s about +16.9% a year. For Bea, about −16.9%. The fund: 0%.
Neither sister was wrong about the fund. They were wrong only if they read the fund’s number as their own.
How do you calculate your own?
The spreadsheet way is exact and free.
List every date money went in or out of the investments, with the amount. Money you put in is negative; money you took out is positive.
Add one last row: today’s date and today’s value, as a positive number.
Use =XIRR(amounts, dates) in Excel or Google Sheets.
Ana’s rows are −$10,000 on January 1, −$10,000 on July 1, and +$22,500 on December 31. XIRR returns about 17%.
A simpler approximation, the Modified Dietz method, needs no solver: divide the gain by the starting balance plus each flow weighted by the share of the period it was invested. Ana’s gain is $2,500. Her base is $10,000 plus half of $10,000, or $15,000. $2,500 ÷ $15,000 is 16.7%, close to the exact answer.
Both methods depend on the same discipline: recording every dollar that crossed the line into or out of the investments, on the date it crossed. The deposit that gets missed becomes “return”. The withdrawal that gets missed becomes a “loss”.
The Eudos Academy lesson on this: Your Return vs. the Investment’s.
Which number should a family watch?
Both, for different things.
The time-weighted figure judges the investments. If a fund trails its benchmark on a time-weighted basis for years, that’s a fact about the fund.
The money-weighted figure judges the family’s own experience: the timing of its saving, its withdrawals, the cash it needed in a bad year. That’s the one that says what the family’s money did. It’s also the one most families never see, because the account that holds the money is built to report on itself, not on the family’s choices.
Bea’s year is the one to remember. Nothing about the fund was bad. A withdrawal at the bottom, taken because cash was needed, turned a 0% year into a $2,500 loss. That’s a cash-planning fact as much as an investment fact. It’s the reason a measure of returns belongs next to a measure of runway.
What the number is not
It is not a grade on anyone’s decisions. Bea may have had a good reason to need the cash in July. Money-weighted return records what happened; it doesn’t say what should have.
It is not a forecast. A strong money-weighted year says the timing worked, not that it will again.
And it is not a reason to time deposits. Ana didn’t know July was the bottom. The point is only to measure the year honestly, after the fact.
Nothing here is advice. It’s the arithmetic, explained plainly.
If you want the instrument behind the writing: Eudos is a family office in software. It keeps a ledger of the money that moves into and out of a family’s investments, measures returns on the capital actually invested, and shows IRR for each holding and each portfolio, so a deposit is never counted as a gain. It’s in private beta; the waitlist is at eudos.com.
To see growth and return side by side on a family’s numbers, open the demo, a fictional family’s wealth with no sign-up. On its dashboard, the breakdown table shows each member’s Growth · 12m, which counts money added, next to IRR · all-time and IRR · YTD, which don’t.