If you've ever seen a fund advertise '10% returns' and your account doesn't show 10%, you've met the gap between three different ways to measure returns.
There is a lot of jargon around this one. Strip it away and the math is genuinely simple. If you've ever seen a fund advertise '10% returns' and your account doesn't show 10%, you've met the gap between three different ways to measure returns.
The smoothed annual rate that turns your start value into your end value over N years. Best for comparing funds head-to-head.
Accounts for cash flows in and out. Reflects your real, personal experience as an investor.
Strips out the impact of your deposits/withdrawals. What fund managers report.
Add money before a crash → IRR drops, TWR untouched. Withdraw after a rally → IRR rises, TWR untouched.
Why does 10% on a fund give me 7% in my account? Likely fees + bad market timing on contributions. Both fixable.
Is past return predictive? Of risk, somewhat. Of next year's return, very little. Don't chase yesterday's winner.
Run your own numbers before you trust a rule of thumb. Two minutes saves a lot of regret.