Modified Dietz Return
Computes a portfolio's return with the Modified Dietz method, which adjusts the result for deposits and withdrawals made mid-period. Instead of ignoring the cash that came in and out, it weights each flow by the time it stayed invested: R = (ending value − beginning value − flow)/(beginning value + flow·weight). It's an approximation of the time-weighted return widely used by managers before the era of daily calculation. Enter the beginning value, the ending value, the net flow and the flow's weight in the period.
Result
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Modified Dietz Return
Computes a portfolio's return with the Modified Dietz method, which adjusts the result for deposits and withdrawals made mid-period. Instead of ignoring the cash that came in and out, it weights each flow by the time it stayed invested: R = (ending value − beginning value − flow)/(beginning value + flow·weight). It's an approximation of the time-weighted return widely used by managers before the era of daily calculation. Enter the beginning value, the ending value, the net flow and the flow's weight in the period.
The honest return when money comes and goes
Measuring a portfolio's return seems trivial: take the ending value, divide by the beginning value, done. The problem shows up when you deposit or withdraw money along the way. A deposit inflates the ending value without that being profit; a withdrawal does the opposite. The Modified Dietz method corrects that distortion without needing the portfolio's value every single day.
The idea is to weight each flow by the time it stayed invested. A deposit made on day one worked the whole period; one made the day before close barely counted. The formula subtracts the flow from the gain in the numerator and adds it, weighted, to the average capital in the denominator. The result is a good approximation of the time-weighted return, which was the standard before systems calculated everything daily.
Enter the beginning value, the ending value, the period's net flow (deposit positive, withdrawal negative) and the flow's weight, which is the fraction of the period it was present. The tool returns the return as a percentage. Remember accuracy drops when flows are large and the market swings a lot within the period.
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The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.