We review two core ways to measure investment performance, and why understanding them can have an impact on your investment behaviour.
An often-overlooked topic we come across is understanding how to correctly measure the returns investments earn. And although calculating the return of an investment portfolio would seem like a relatively simple procedure, this isn’t always the case. The fact is that there is more than one way of measuring it. And in many situations, the results will differ depending on the method chosen.
Particularly confusing can be the interrelation which exists between the size of investment returns, with the timing of those returns. So as to provide some clarity on this topic, in this article we will highlight what are known as ‘time weighted rates of return’ with that of ‘money weighted rates of return’. By contrasting these two measures, we aim to help you understand which approach is the best, depending on the use to which you intend to put the result.
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