StashAway | Investing, redefined

Why do I have a negative time-weighted return, but positive dollar return?

Time-weighted return (TWR) measures the return a portfolio generates if there has been no new withdrawal/deposits during that time period. Therefore, TWR can differ from dollar return if you have made a deposit/withdrawal during the measurement period. 

Here’s an example of when this might be the case:

Let’s say you deposited $10,000 HKD to start your StashAway account in January and the market goes down 10% by September. You’ve lost $1,000 HKD (out of $10,000 HKD invested) in your portfolio and you’re down to $9,000 HKD. You then have an unexpected windfall (lucky you!) and decide to make a $10,000 HKD deposit in September. By December, the market goes up 8% after the second tranche of investment. 

 

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What are my returns like now? Well, you would have positive dollar gains because you just gained about $520 HKD on a total of $20,000 HKD invested.

But this wasn’t because the portfolio has performed exceptionally thus far: it went down 10% then up just 8%. However, most of your money was invested right before markets went up.

The time-weighted return is negative because the first deposit of the investment performed poorly between January and December, but your simple dollar return is still positive because of when you made your deposits.