Dollar-Weighted Return
Definition
The actual return you earned based on when you added or withdrew money from an investment. It accounts for the timing and size of your cash flows. If you added money right before a big gain, your dollar-weighted return is higher than the fund's stated return.
Why It Matters
A fund might return 10% for the year, but if you invested most of your money right before a dip, your actual return could be 3%. Dollar-weighted return shows what YOU actually earned, not what the investment earned. It highlights the cost of bad timing.
Example
A fund returns 20% in January and -10% in July. If you invested $10,000 in January, you'd end the year with ~$10,800. But if you added $90,000 in June, your $100,000 total is now ~$98,000. The fund is up overall, but you lost money.