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The two most commonly used methods to calculate how successful an investment are the Simple Rate of Return (SRR) and the Time Weighted Returns (TWR).
SRR is a simple calculation of an investment’s percentage return based on the initial investment and the net profit or loss. Any contribution, withdrawal will lead to misleading and erroneous results. Meanwhile, the TWR breaks up returns into separate time intervals based on cash flows, and compounds them together.
The advantage of the Time Weighted Returns calculation is that; it almost acts like a financial diary providing you with the intelligence about why your investment performed as it did at certain times.
Historically, calculating time weighted returns was complicated and time consuming. That is now a thing of the past as we have developed a tool that allows you to toggle between the time weighted return and simple rate of return, so you have choice when it comes to analysing your investment performance.
Related resource: How to measure a portfolio’s true performance
For Glossary of terms, abbreviations and explanations on investments, please visit adcb.com/invglossary.
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This webpage is for information and illustrative purposes only and does not constitute any form of advice, commitment or engagement on behalf of the Abu Dhabi Commercial Bank and any of its subsidiaries including ADCB Asset Management Limited ("ADCB Group"). It should not be construed as an offer or solicitation to buy or sell any investment products, nor is it to be considered as personalized investment advice. It should be read in conjunction with applicable documents and respective terms and conditions for potential investor to understand the terms and information contained therein. Persons receiving this email are instructed to discuss it with their professional legal, financial and tax advisors before they make any financial commitments and shall be deemed to have made a reasonable assessment of the potential risks and rewards in making such a commitment. ADCB Group does not guarantee any third party service provider, and investors invest at their own risk and bear all risks involved in any product purchased. ADCB Group will not hold any responsibility for the outcome of any investment decisions taken. Past performance does not guarantee future results. Investment products are not Bank deposits and are not guaranteed by the ADCB Group, they are subject to investment risks, including possible loss of the principal amount invested. Please refer to ADCB Wealth Services Terms and Conditions and/or to ADCB Asset Management Limited Terms and Conditions.
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