At Parqet, you can view your portfolio’s performance as the capital-weighted return, or return for short, or as the time-weighted return, also called TTWROR (True Time Weighted Rate of Return). In this article, we compare the two metrics and explain how to get the most information about your portfolio out of them.

Still have questions about return, TTWROR or performance after reading? Then write to us via our contact form (topic “Portfolio (Calculation, Display Errors)”).

Let’s start with the capital-weighted return, which is easier to understand intuitively.

The capital-weighted return is based on the amount of capital invested, the time-weighted return on the timing of the investment.

Performance is calculated by comparing the current value of your portfolio with the total capital invested in the selected period.

The mathematical formula for the calculation is:

This formula applies to the “Since buy” period. If you select a shorter period, for example “1 year” or “YTD”, the basis is the value of your portfolio on the day before the period starts plus your buys within the period. With a reference account, your deposits count instead of your buys. More on this: Why are my price gains wrong?

By default, the performance chart in the “Performance” view shows only price gains. Dividends and realized gains only count once you turn on “Include dividends and realized gains”. In the web app, you’ll find this option below the chart; in the mobile app, it’s under the gear icon on the chart in “Performance Settings”. If your portfolio has a reference account, they are included automatically. The option is then always on and can’t be turned off.

If you have put €1,000 into an ETF that is now worth €1,500, your performance is calculated as follows: (1500 / 1000) - 1, which is 0.5. That equals a return of 50%.

If you now invest money again, e.g. €1,000, your portfolio is worth €2,500. This value is made up of two deposits of €1,000 each and the €500 performance of the first deposit.

So from the moment you invest the second €1,000, your performance is no longer 50%, but 25%. (2500 / 2000) - 1, which is 0.25 or 25%.

So your performance was cut in half in one go because the capital invested doubled.

Here is how this looks in an example portfolio:

Here, 2 x €100 were invested in the Vanguard ETF, a little more than 1 year apart. For the invested capital, this gives the following picture:

Here you see the purchase value of the two deposits (light gray line) and the value development of the portfolio (dark blue line). In the performance chart, you’ll notice the following:

At the time of the deposit (investment) in early March 2024, you can see a “drop” in performance: the chart falls steeply here. Before that, performance was just above 26%.

After the second buy, it falls to just over 13%:

This is because the second deposit doubles the original deposit. Compared with the FTSE All-World that was invested in, you get the following picture:

Performance drops from the second buy onward; more precisely, performance halves when the invested capital doubles.

The reason is that the ETF has its basis on January 1, 2023, just like the first €100. The second investment, however, doubled the basis on which performance is calculated, which is why performance halves from the time of the second investment onward.
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Remember the formula for the calculation:

The basis of the ETF in the benchmark, on the other hand, stays the same. So the benchmark performance is not halved but continues as before.

If you don’t want this effect, TTWROR performance may be the better alternative for you.

A savings plan behaves just like the example above, only in a weaker form. In the example, the basis, i.e. the invested capital, doubled. With a savings plan, this only happens with the second deposit, provided all deposits are the same size. With the third, the invested capital only increases by 50%, with the next by 33.3%, and so on.

When you invest via a savings plan (in rising markets), performance loses a few percentage points with every execution of the savings plan compared with the performance of the ETF you invest in. You hardly notice this from month to month, but it causes performance to slowly drift further and further away from the ETF. Here is an example of a monthly €100 savings plan in the Vanguard FTSE All-World ETF:

Mathematically, this is because the denominator of the formula keeps growing relative to the numerator. The result gets closer and closer to zero, and performance “lags behind”. But this can also be an “advantage”:
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If you invest in a falling market with a savings plan, you can end up doing “better” than the ETF you invest in.

Let’s say you invest €100 every month in 2022 in an MDAX ETF:

Here you can already see that the ETF fell during this period; even toward the end, the portfolio value is still below the deposited capital. Comparing the portfolio’s return with that of the ETF that was invested in gives the following picture:

Once again, the portfolio’s performance trails that of the benchmark ETF, but this time in the other direction. The return comparison shows that the savings plan portfolio has a smaller loss of only -10%, compared with -30% for the ETF in the same period. Here, too, performance moves closer to zero with every additional euro invested. Since performance is negative in this case, the relative loss in relation to the capital invested decreases.

This means: the larger the share of newly invested capital relative to the capital already invested, the closer performance moves to zero at the time of the deposit.

So in a falling market, the relative loss in relation to the capital invested decreases; in a rising market, the relative gain decreases.

If you want to judge your performance independently of your invested capital, TTWROR is the more suitable metric for you. It shows your performance independently of the invested capital.

You can also view the capital-weighted return in our mobile app. You’ll find it here on the dashboard under “Performance”. Below it, you can also see a comparison with fixed assets (S&P 500, DAX, FTSE All-World).

While the return shows the actual individual return on the total capital invested, this view “distorts” performance with regard to your choice of stocks.

So if you want to know whether you made a good choice with your securities, you can’t judge that accurately if you make regular deposits and withdrawals. With an ETF savings plan, your result can also be distorted, because at first glance you do worse than the ETF you regularly invest in. (Why this is the case is described here.)
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This is where TTWROR comes in: it lets you evaluate the performance of your assets and your entire portfolio independently of deposits and withdrawals, based only on the assets you have selected. The TTWROR chart of your portfolio (only with a Plus or Investor subscription) includes all price gains, dividends and realized gains. Like the capital-weighted return, TTWROR shows performance from the start of your period. Unlike the IRR, it is therefore not annualized but applies to the entire period.
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If you want to know in more detail how TTWROR is calculated, you can look at an example here:

Please note that calculating TTWROR is much more complex than calculating the capital-weighted return. You should already understand the latter at this point. You can read the explanation of that calculation here.

Imagine an investment in 2 assets, A and B:

In January, you invest €1,000 in asset A. By July 1, it achieves a return of 5% (+€50).

Then, in July, you invest €9,000 in asset B right away. By early December, asset A rises again and now has a return of 10% (+€100), and asset B has even gained +50% in the six months, i.e. +€4,500.

The capital-weighted return shows a gain of 46%, i.e. €4,600 in unrealized gains on total invested capital of €10,000.

If you now want to double your investment at the end of December and buy both assets again in the same ratio (€1,000 asset A and €9,000 asset B), your invested amount doubles. You have made the €4,600 on €20,000 of invested capital, so your performance based on the capital-weighted return “falls” to 23%.

This is where the TTWROR calculation comes into play. It doesn’t care when you buy more or for how much money. Your TTWROR is 52.53% both before and after the buy (we’ll see where this number comes from later in a detailed explanation of the calculation). So your additional buys have no effect on your TTWROR performance, but your weighting does. That’s why it was important that the additional buy had the same weighting.

The effect of weighting becomes even clearer if both assets are bought with equal weighting:

Now, in January, you buy shares of asset A for €5,000 and in July shares of asset B for €5,000.

Your return up to December is +10% for asset A (+€500) and +50% for asset B (+€2,500).

Even if you now buy another €5,000 of each, your TTWROR is 33.17%.

In case you’re wondering why it is lower here than before: it’s because of the weighting. Let’s recall the performance and the weighting:

Here you can see why TTWROR is higher in variant 1. If 90% of the portfolio achieves a return of 50% and only a tenth achieves 10%, that is better than if only 50% of the portfolio achieves a 50% return and the other half 10%.

If you have not just 2 assets in your portfolio but many different ones, the calculation works the same way, just with more assets.

The TTWROR chart is available with a Plus or Investor subscription.

Recall the difference from the benchmark in the capital-weighted return comparison (read it again here).

With TTWROR, this phenomenon disappears, as the same portfolio from the example above shows. Here you can clearly see that the performance almost matches:

This means TTWROR lets you compare your performance with other indices more accurately, because your deposited capital has no effect on performance.

Dividends you receive, however, do affect TTWROR and are included in the chart, which is why we recommend comparing with an accumulating ETF. An accumulating ETF reflects the dividends received in its price, whereas with a distributing ETF they “disappear” from the chart.

The mathematical formula for the TTWROR calculation is the same as for the capital-weighted return, but Parqet calculates it for individual sub-periods and chains the results (multiplies them) to neutralize deposits and withdrawals.

We can illustrate this with the example from above. Here, there are several sub-periods (the time between two activities within the selected period), which are separated by the activities. So a sub-period ends just before an activity (buy/sell etc.), and the next sub-period starts right after that activity. In our example, we had the following activities:

This results in the following sub-periods:

Here you can clearly see that sub-period 2 starts with a much higher value than sub-period 1 ends with. This way, we eliminate the fluctuations in deposited capital and can calculate performance independently of them.

If we now determine the returns of the individual sub-periods:

Now 1 is added to each of the individual returns, the results are multiplied, and finally 1 is subtracted to calculate the total performance for the year:

((1 + 5%) * (1 + 45.27%) * (1 + 0%)) - 1

(1.05 * 1.4527 * 1) - 1

1.5253 - 1 = 52.53%

Your reference account contains the offsetting entries for your activities. So a €1,000 buy is added to your assets but deducted from your account at the same time. If you invest all your cash right away, the reference account has no effect on your performance. So if you buy assets with it on the day you deposit to the reference account, or reinvest a dividend right away, your TTWROR stays the same.

If you hold cash, however, things look different. At portfolio level, the performance basis includes both your cash and your assets. So if you have invested 100% of your capital, i.e. you have no cash in the account, your portfolio’s performance is that of your assets. If you do have cash in the account, it is included in the calculation.

Let’s say you transferred €2,000 to your reference account on January 1, 2024, and immediately invest €1,000 of it. The remaining €1,000 stays in your account.

The ETF you bought with the €1,000 has risen 17.7% since then. Here you can see the details:

Those were the activities, so the current status looks like this:

Here you can see that the ETF’s performance is the same for TTWROR and the capital-weighted return. That’s because there is only one sub-period: the one starting from the ETF buy.

But if we now compare the performance of our portfolio with that of the ETF, we see the following:

We did worse even though we only invested in this ETF. That’s because of the cash balance in the portfolio. Since we only invested 50% of our portfolio in assets at the start, this asset’s performance also only makes up 50% of the total performance:

We already explained the effect of weighting on performance in the example calculation.

If you want to dig deeper into the TTWROR calculation including cash, you can find a detailed calculation in the appendix (it also includes a dividend).

This is where it gets a bit more complex. The exact calculation with dividends is beyond the scope of this article, so here is the short version: the dividend is taken into account in the performance calculation. Your TTWROR is made up of price gains and the dividends received; these are always included in the performance.

If you pay taxes and fees, your TTWROR becomes better than without these costs. That sounds strange at first, but it has to do with weighting.

Let’s briefly recall the rules of TTWROR at this point:

Because of the taxes and fees, you now hold proportionally less in cash and more in assets. In our example, cash has no return; a larger share of your portfolio has generated a gain, so you have a better TTWROR.

If you look at your portfolio without a reference account, taxes and fees have no effect.

This applies to taxes and fees that belong to a buy, a sell or a dividend. Costs that you book directly to the cash holding or reference account, for example custody or account fees, lower your TTWROR. More on this: Recording taxes & fees as a separate activity

The TTWROR chart is available with a Plus or Investor subscription.

Calculating the chart is simple. We start with the first day of the selected period and calculate TTWROR for each individual day in the way described above.

For each day:

The end value of your portfolio determines the end value of the last sub-period. Only activities that took place between the start of the selected period and the day in question are included in the calculation.

This gives us a TTWROR performance for each day, which we connect in the chart.

You can also view the TTWROR chart in our mobile app. The chart is available with a Plus or Investor subscription. You can see the TTWROR metric even without a subscription: in the web app on the dashboard in the “Returns” section, in the mobile app in “Return Details”, and on every holding.

There’s no general answer: both metrics have advantages and disadvantages, and it depends on what you want to know. Here are some examples:

Capital-weighted return:

Time-weighted return (TTWROR):

Differences between the two metrics:

If you want to see exactly how your own capital has developed, the return chart (capital-weighted) is the better choice.

But if you want to compare your investment strategy with other portfolios, indices or ETFs, the TTWROR chart is the more useful alternative, because it does not include the individual capital inflows and outflows.

How the IRR (internal rate of return) works in detail is described in this FAQ article. Here we only go over it briefly as a refresher:

The IRR shows your performance from price gains, realized gains and dividends, and is also capital-weighted. We can illustrate this with an example:

Let’s say you buy two shares at €500 each at the beginning of the year, and in the middle of the year you buy two more shares, again at €500 each. By the end of the year, the price rises and one share is worth €1,000. For the capital-weighted return, it doesn’t matter when the activities took place. Over the year, you spent a total of €1,000 + €1,000 = €2,000. At the end, you have a value of €4,000. Your unrealized gain is €2,000, your unrealized return is +100%.

For the IRR, however, it matters when the buys were made. The first two shares gained 100% in one year, the last two shares gained 100% in half a year. The IRR respects the different returns and calculates an “average” return over the year.

So the IRR answers the question: At what rate of return do I have to invest €1,000 for 12 months and €1,000 for 6 months to end up with €4,000? The answer is about 144% per year: at this rate, €1,000 grows to about €2,438 in 12 months and €1,000 to about €1,562 in 6 months. Together, that’s €4,000.

Because the IRR is an annual return, it’s best to compare it with other annual figures, for example the IRR for the “1 year” period. Example:

Your portfolio has existed for many years and your IRR is 9%. Now you want to know whether you did better or worse last year than your historical performance. Your current IRR shows your average annual return on your invested capital since the portfolio started. If you change your portfolio’s period to “1 year”, you see your performance over the last 365 days, i.e. the last year. You can now compare these two numbers: if the IRR for the last 365 days is higher, you did better last year than in the past; if it is lower, you did worse.

This is because TTWROR is independent of your deposited capital. An extreme example illustrates this well:

Here we bought two stocks into the portfolio with different weightings: Microsoft for €500 and Peloton for €100. The Peloton stock has fallen sharply since then, and you have suffered an almost total loss on your €100 stake. Your Microsoft position has more than made up for this loss thanks to its higher weighting in the portfolio. With your price gains, you are net positive at portfolio level, and your IRR is positive because you made a gain on your total invested capital.

TTWROR, however, doesn’t care about the difference in invested capital; it only looks at the fact that one position is deep in the red and the other has made a decent gain. The fact that your invested capital is positive overall is not considered here. Remember: the invested capital is not relevant for performance, only the weighting. In this example, this means: Microsoft influences TTWROR more strongly than Peloton, but despite the much higher capital it doesn’t pull it toward zero, unlike with the capital-weighted return. So your TTWROR is not as far in the red as your Peloton position, but not positive like your invested capital either.

If you made large losses with just a few assets at the beginning, this affects the entire chart. So heavy losses at the start affect the chart up to today, even if they were made with only a few assets or little capital.

This is best explained with an example:

The same 2 assets are bought in two portfolios: Wirecard and a FTSE All-World ETF. Wirecard both times on January 1, 2020, and the ETF once on June 1 and once on July 1 of the same year. That doesn’t sound like a big difference, but it has a big effect on the chart.

Portfolio 1:

And portfolio 2:

In both portfolios, 100 shares of Wirecard and 500 shares of the ETF were bought. To understand the relevance of timing for TTWROR, we need to look at Wirecard’s performance:

The stock crashed dramatically in June 2020, with a loss of more than 90%.

If we look at the capital-weighted return of both portfolios, we hardly notice any difference:

Portfolio 1:

We made a 31% gain here.

Portfolio 2:

We made a 30% gain, even though the swing in 2020 looks much more severe.

But if we now look at the TTWROR charts, the difference is huge:

Portfolio 1 (ETF bought on June 1, 2020):

Portfolio 2 (ETF bought on July 1, 2020):

Because the ETF in portfolio 1 was bought before the crash, the crash didn’t carry as much weight, since the Wirecard stock had a much lower weighting in the overall portfolio than the ETF.

In portfolio 2, however, there was no ETF in the portfolio yet when Wirecard crashed; it was only bought afterward. So the portfolio’s TTWROR crashes together with Wirecard to below -90%.

Simply because the sub-periods started and ended at different points, the portfolio’s TTWROR was strongly affected.

This example shows well why what matters for TTWROR is not the amount of deposited capital, but market timing and the weighting within the portfolio.

With the capital-weighted return, on the other hand, the deposited capital does have an effect, as the first screenshots of the chart show. There, too, you can see the Wirecard crash in portfolio 2. But the curve quickly returns toward 0 as soon as the ETF is bought for much more money than was invested in Wirecard.

To illustrate, here is an example with a dividend, a reference account and reinvestment of the dividends:

Let’s say on January 1 you transfer €1,000 to your reference account and buy 10 shares of Apple at €100. On July 14, these shares are worth €125 each. On the same day, you receive a dividend of €5 per share, €50 in total. You reinvest the dividend right away in 0.4 shares. On December 31, your shares are worth €150 each, and you sell all 10.4 shares.

Now we split everything into sub-periods again. You’ll see that every booking forms its own sub-period:

Sub-period 1, from January 1 to January 1. Start: €1,000, end: €1,000. Return: 0%. Your transfer.

Sub-period 2, from January 1 to January 1. Start: €2,000, end: €2,000. Return: 0%. The buy of your asset.

Sub-period 3, from January 1 to July 14. Start: €1,000, end: €1,250. Return: 25%. The offsetting entry for the buy (after the buy in sub-period 2, there were €1,000 in assets and €1,000 in cash in the reference account. So this sub-period starts after the €1,000 for the buy has been deducted again and there are only €1,000 in assets left in the portfolio).

Sub-period 4, from July 14 to July 14. Start: €1,200, end: €1,250. Return: 4.166%. The dividend.

Sub-period 5, from July 14 to July 14. Start: €1,300, end: €1,300. Return: 0%. The offsetting entry for the dividend.

Sub-period 6, from July 14 to July 14. Start: €1,350, end: €1,300. Return: -3.846%. The reinvestment of the dividend (the €1,300 comes from 10.4 shares * €125).

Sub-period 7, from July 14 to December 31. Start: €1,250, end: €1,560. Return: 24.8%. The offsetting entry for the reinvestment.

Sub-period 8, from December 31 to December 31. Start: €0, end: €0. Return: 0%. Sale of your shares.

Sub-period 9, from December 31 to December 31. Start: €1,560, end: €1,560. Return: 0%. Offsetting entry for the sale.

After combining everything, TTWROR here is 56.25%. So far, everything is normal!

The reference account has no effect on TTWROR if all cash is invested immediately.

Now, in the previous example, you transfer €2,000 instead of €1,000 to your reference account and otherwise do everything as before:

Sub-period 1, from January 1 to January 1. Start: €2,000, end: €2,000. Return: 0%. Your transfer.

Sub-period 2, from January 1 to January 1. Start: €3,000, end: €3,000. Return: 0%. The buy of your asset.

Sub-period 3, from January 1 to July 14. Start: €2,000, end: €2,250. Return: 12.5%. The offsetting entry for the buy.

Sub-period 4, from July 14 to July 14. Start: €2,200, end: €2,250. Return: 2.272%. The dividend.

Sub-period 5, from July 14 to July 14. Start: €2,300, end: €2,300. Return: 0%. The offsetting entry for the dividend.

Sub-period 6, from July 14 to July 14. Start: €2,350, end: €2,300. Return: -2.127%. The reinvestment of the dividend (the €2,300 comes from 10.4 shares * €125 + €1,000 cash balance).

Sub-period 7, from July 14 to December 31. Start: €2,250, end: €2,560. Return: 13.777%. The offsetting entry for the reinvestment.

Sub-period 8, from December 31 to December 31. Start: €1,000, end: €1,000. Return: 0%. Sale of your shares.

Sub-period 9, from December 31 to December 31. Start: €2,560, end: €2,560. Return: 0%. Offsetting entry for the sale.

TTWROR is now only 28.12%.

As you can see, a higher cash weighting leads to a lower TTWROR. We already mentioned this further above and have illustrated it here with numbers. For TTWROR, it makes no difference whether the weighting shifts between asset A and asset B, as in the example above, or between Apple and the reference account. It is treated the same way in the calculation. The reference account has a 0% return (interest excluded for simplicity).
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Accordingly, dividends that are not reinvested also have a negative effect on the TTWROR of your overall portfolio.