Introducing Time-Weighted Rate of Return on M1

Evaluate performance like a pro.

It’s finally here! Time-Weighted Rate of Return (TWRR) is now available to help you better understand the performance of your Pies on M1. Clients have been asking for it—and we’ve been listening. Now, you can now toggle between this new metric and our existing Money-Weighted Rate of Return (MWRR) to gain deeper insights into your investment performance.

Two Ways to Measure Success

Understanding investment performance isn’t one-size-fits-all. That’s why we’re now offering two complementary methods to evaluate your portfolio’s growth:

• Money-Weighted Rate of Return (MWRR): This metric accounts for the timing and size of all cash flow in and out of your portfolio.
  – It answers the question: “How have my specific investment decisions and timing affected my overall returns?” In other words, “How has the average dollar in my portfolio grown?”
• Time-Weighted Rate of Return (TWRR): This metric eliminates the impact of deposits and withdrawals, focusing purely on the performance of your investments themselves.
  – It answers the question: “How well has my investment strategy performed, regardless of when I added or removed money?”

Why We Added Time-Weighted Return

While Money-Weighted Return provides valuable personal insights, Time-Weighted Return offers a few additional distinct benefits:

• Compare to benchmarks: TWRR is the industry standard used by fund managers and market indices, making it easier to compare your portfolio performance to benchmarks like the S&P 500
• Evaluate strategy: By removing the impact of your deposit and withdrawal timing, TWRR helps you assess if your investment selections and allocations are performing as expected.
• Get insights: TWRR is a common performance metric used by fund managers, advisors and finance experts. Now you can see it for yourself.

How to Use Both Metrics

Toggling between these metrics is simple. In the Performance section of your dashboard, you’ll now see an option to switch between Money-Weighted and Time-Weighted returns. We recommend using both:

You can use Money-Weighted Return to understand your personal rate of return factoring in your specific contribution timing

On the other hand, Time-Weighted Return can be used evaluate your investment selections against benchmarks and to assess your overall strategy.

These metrics can tell different stories, particularly when you’ve made significant deposits or withdrawals. For example, if you invested heavily before a market upswing, your MWRR might exceed your TWRR. But if you invested a lot before some market downturns, your MWRR might be lower than your TWRR. At M1, we believe in long-term investing over timing the market. TWRR can be valuable for investors to understand their performance if you’ve transferred in an account from another brokerage or needed to make a large sale to pay for life expensesd. This way you can evaluate if you have the right strategy without your performance being skewed by these significant purchases or sales.

You can also adjust the time range reflected by these metrics, so you have a clear picture of your long-term and short-term performance.

By offering both metrics, M1 lets you see a complete picture of your portfolio to assess both your investment decisions and your timing decisions.

Try toggling between these metrics today to help understand your investment performance.