7.3.13. Time-Weighted Returns
A time-weighted return is used to measure the compounded rate of growth in a portfolio. Conceptually, the time-weighted return is the compounded growth rate of the initial investment over a given period of time. This return is calculated using the geometric mean, rather than the arithmetic mean. Unlike the dollar-weighted average, as discussed soon, the time-weighted return gives a return that does not incorporate deposits or withdrawals into the account. For this reason, it does not weight the return toward periods when the account has more money in it. Because the time-weighted return