Deposits and returns: separate contributed money from performance
Link returns between cash flows and test why a larger account balance is not the same as investment performance.
A deposit increases an account balance without earning a profit. First separate changes in investment value from outside money. TWR, the time-weighted return, links the returns of subperiods separated by external contributions or withdrawals.
Value the account on both sides of a flow
All amounts are invented in one currency. Start with 1000 on 2021-01-01. At the 2022-01-01 boundary, value before the deposit is 1100. An immediate contribution of 1000 starts the next subperiod at 2100. At the 2023-01-01 boundary, final value is 1890. There are no other flows, fees or taxes.
The pre-flow 1100 and post-flow 2100 describe the same boundary. Without the valuation before the flow, exact TWR generally cannot be recovered from initial and final balances alone. Knowing contribution dates alone is insufficient too.
Link two subperiod returns
The first return is 1100/1000−1=10%; the second is 1890/2100−1=−10%. Linking gives 1.1×0.9−1=−1% for the whole two-year period, not an annual return. Cash profit is a different quantity: 1890−1000−1000=−110.
Balance growth of 1890/1000−1=89% includes contributed money. Dividing −110 by total contributions of 2000 gives −5.5%, but this is neither the calculated TWR nor a calculated IRR. IRR means internal rate of return; a separate equation uses cash-flow sizes and dates.
Our own teaching example; all figures are hypothetical.
1100/1000 − 1 = 10%; 1890/2100 − 1 = −10%; 1.1 × 0.9 − 1 = −1%; 1890 − 1000 − 1000 = −110
| Date | Before flow | Contribution | After flow |
|---|---|---|---|
| 2021-01-01 | 1000 | 0 | 1000 |
| 2022-01-01 | 1100 | 1000 | 2100 |
| 2023-01-01 | 1890 | 0 | 1890 |
Keep the method with the original observations
In an external table, retain date, pre-flow valuation, flow, post-flow valuation, currency and included expenses. Do not replace missing valuations with guesses. This example establishes neither skill nor future profit probabilities or outcomes.
The TWR definition follows the GIPS explanation, but this article does not claim GIPS compliance. Elliott studies price charts rather than brokerage-account performance. Its scenario-journal template is not a TWR/IRR calculator and does not promise automatic cash-flow accounting.
An investment grows from 1000 to 1100; a contribution of 1000 arrives only at the final measurement boundary, leaving 2100. What is the pre-deposit investment return?
10%: 1100/1000−1. Balance growth of 110% includes the final contribution and is not the investment return.
Sources
Sources checked: 2026-10-21
This material and its translations were prepared with AI assistance. Educational calculations were checked programmatically. Sources explain concepts; examples and files were created for this article.
Related reading
Next step
Keep dates, balances and external calculations separately beside your observation journal. The journal preserves the original hypothesis; it does not replace a brokerage statement or performance calculation.
Observation journal →