TWROR & IRR, explained
Two return numbers that actually mean something — what they measure, how they’re calculated, and when to trust each.
“Did I make money?” has two correct answers, and they measure different things. TWROR tells you how good your investments were. IRR tells you what your money actually earned, given when you added and removed it. A plain “my account is up 12%” (naïve ROI) blends the two and quietly rewards or punishes you for the timing of your deposits — which is why FolioCenter reports both, the way professional funds do.
TWROR — Time-Weighted Rate of Return
TWROR measures the return of the portfolio itself, stripped of the effect of money flowing in or out. It does this by cutting the timeline at every cash flow (FolioCenter cuts it daily), measuring each slice’s return on the capital that was actually invested, and chaining those slices together:
Each day’s return is measured on the capital working that day (value_start plus any money added), so a deposit or withdrawal never shows up as “performance”. Linking the daily factors geometrically gives the true compound growth of the portfolio. FolioCenter then annualises it so you can compare across periods.
Use it to: compare yourself to a benchmark (MSCI World, S&P 500) or to a fund. Because it ignores when you invested, two investors holding the same funds get the same TWROR — it isolates selection and strategy, not timing.
IRR — Internal Rate of Return
IRR (a money-weighted return) is the single annual rate that discounts all of your actual cash flows — your opening value, every deposit and withdrawal, dividends, and your closing value — back to a net of zero:
There’s no closed-form solution, so FolioCenter solves it numerically (Newton-Raphson) using the real dates of every flow — the same approach as a spreadsheet’s XIRR. Because it weights each euro by how long it was invested, the size and timing of your contributions matter: add a lot just before a rally and your IRR beats your TWROR; add it just before a drop and your IRR trails.
Use it to: judge your personal outcome — the actual growth rate of the money you committed, timing included.
A worked example
You invest €10,000 in January. Over the first half-year the market rises 20%, so by June you hold €12,000. In July you add €100,000 — and the market then falls 10% in the second half. You end December with €100,800.
| Measure | Result | What it’s telling you |
|---|---|---|
| TWROR | +8% | (1 + 20%) × (1 − 10%) − 1. Your investments did well — selection was sound. |
| IRR | negative | You lost money overall: most of your capital (€100k) was invested right before the 10% fall, so your euros earned a negative return despite the +8% investment performance. |
Same portfolio, two honest answers. TWROR says the strategy worked; IRR says the timing hurt. Neither is “the” return — together they tell the full story.
Which should I look at?
- Comparing to the market or a fund? Use TWROR — it’s the apples-to-apples number.
- Asking “how did I actually do”? Use IRR — it reflects your real euros and your timing.
- Big gap between them? That gap is your timing effect — useful feedback on when you add money.