# How do you calculate my investment return?

We calculate a “time-weighted” return (TWR), which measures the compound rate of growth in your portfolio(s). TWR focuses purely on how your asset selection is performing because it doesn’t let the timing or size of new deposits or withdrawals distort the calculation. We believe this is the most helpful method to gauge your portfolio performance, it lets you know how the investments in a portfolio would have performed over a period of time regardless of when you chose to make deposits or withdrawals. You can find your TWR on both an overall account level and on an individual milestone level.

Here is the formula for time-weighted return for the time period between day 1 and day n,

Time Weighted Return:

Example 1: Four days of returns

You put \$100 into the portfolio on day 1. For the next four days, your WiseBanyan portfolio returned the following:

• Day 1: +0.25%
• Day 2: +0.10%
• Day 3: -0.15%
• Day 4: +0.05%

To measure the compound rate of growth in your portfolio during this period, we calculate your time-weighted return.

Example 2: Large transfers and why the time-weighted return is important

Time-weighted return focuses purely on how your asset selection is performing. It is important because it removes the distorting effect that can come from the timing or size transfers, like deposit and withdrawals.

Here’s a simplified example, let’s say you deposited \$100 and the portfolio returned 10% on the first day and then -5% the second day. The portfolio itself is performing positively! Its time-weighted return is 4.5%. With \$104.50 after two days, you earned \$4.50.

Now let’s say that instead of just investing \$100 you had also deposited another \$1,000 right before the second day. The portfolio itself is the same as before and is performing positively! Its time-weighted return is still 4.5%. However, this large deposit distorts the simple dollar return of the portfolio because of the timing of the deposit. In this case, you would have negative dollar earnings. Your portfolio would have lost \$55.

The portfolio did not perform poorly. In fact, the portfolio’s time-weighted return is 4.5% (with +10% return on the first day and -5% return on the second day). Instead, the earnings are negative because most of the money was deposited right before the second day.

Because of deposit and withdrawals, it is possible to have a positive time-weighted return but a negative gain on your investments (like in this example). It is also possible to have a negative time-weighted return but a positive gain on your investments.