Different Calculation Methods for Different Purposes
dub uses different performance calculation methodologies depending on what's being measured:
- Account-Level Performance uses Money-Weighted Return (MWR)
- Portfolio-Level Performance uses Time-Weighted Return (TWR)
- Core and Premium Tab Portfolio Performance uses TWR with dividends included
Understanding these differences helps you better interpret the performance metrics you see across the app.
Money-Weighted Return (MWR)
What Is It?
Money-Weighted Return (MWR) measures the performance of your investments while accounting for the timing and size of your cash flows, such as deposits and withdrawals.
Where It's Used
- Account-Level Performance: Your overall account performance is displayed using MWR
Key Characteristics
- Takes into account when you add or withdraw money
- Reflects your actual investment experience
- Shows how your specific investment decisions have influenced your returns
- Similar to an "internal rate of return" calculation
- Provides a personalized measure of performance
When It's Most Useful
- When you want to understand your personal investment performance
- When evaluating the overall success of your investment strategy
- When assessing how your timing of deposits and withdrawals has affected your returns
Time-Weighted Return (TWR)
What Is It?
Time-Weighted Return (TWR) measures the compound growth rate of investments over time, regardless of deposits and withdrawals.
Where It's Used
- Portfolio-Level Performance: Individual portfolio performance is displayed using TWR
- Core and Premium Tabs: Performance of portfolios you might want to copy is shown using TWR
Key Characteristics
- Eliminates the impact of cash flows
- Focuses solely on investment performance
- Allows for fair comparison between different investment strategies
- Not affected by when or how much money you add or withdraw
When It's Most Useful
- When comparing portfolio performance against benchmarks
- When evaluating a portfolio creator's investment skill
- When deciding which portfolio to copy
Dividend Treatment in Performance Calculations
- Core and Premium Tab Performance includes dividends in the calculation for a more complete picture
- Individual Portfolio Performance currently does not include dividends, though dub is working to incorporate this in the future
Understanding Performance in Different Scenarios
Example 1: Account vs. Portfolio Performance
If you copy a portfolio that has a 10% TWR for the year, but you invested additional funds during a market downturn, your personal MWR for that portfolio might be higher than 10% because you bought more at lower prices.
Example 2: Comparison Shopping
When browsing portfolios in the Core and Premium tabs, you're seeing TWR with dividends included. This provides the most comprehensive view of a portfolio's historical performance before you decide to copy it.
Frequently Asked Questions
Q: Which return method is better, TWR or MWR?
A: Neither is inherently "better" - they serve different purposes. MWR shows your personal experience, while TWR is better for comparing investment strategies.
Q: Why might my account performance differ from the portfolio's advertised performance?
A: Your account uses MWR (affected by your deposit and withdrawal timing), while portfolio performance uses TWR (unaffected by cash flows).
Q: Does dub include dividends in all performance calculations?
A: Dividends are included in portfolio-level performance calculations that are displayed publicly. However, dividends are not currently included in account-level performance calculations.