Dollar-weighted return
Certified Financial Planner glossary · Certified Financial Planner
Definition
The internal rate of return of an investor’s actual cash flows; measures investor experience rather than manager skill.
Dollar-weighted return in plain English
The fund brochure shows a stellar time-weighted number, yet the client's personal statements look mediocre because they bought after the rally. Dollar-weighted return is the internal rate of return of the investor's actual cash flows; it measures investor experience rather than manager skill. Time-weighted return strips out contribution timing to judge the manager. If the stem asks how the client actually did, use dollar-weighted (IRR), not the brochure's TWR.
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