Your brokerage balance was $50,000 last month. Today it's $53,000. Great month, right? +6%?
Not if $2,500 of that was your own paycheck being deposited. Your investments actually earned $500 — about 1% — and the rest was just you moving your own money around. This is the single most common way people misread their portfolio performance, and most finance apps make it worse by charting raw balances.
Here's how returns actually work, and how to see your real number.
The problem: deposits look like gains
A balance chart answers "how much money is in the account?" It cannot answer "how well are my investments performing?" — because every deposit pushes the line up and every withdrawal pushes it down, regardless of what the market did.
The distortion is biggest for exactly the people trying hardest: if you're contributing $500 every two weeks to a 401(k), your balance chart will look fantastic even in a flat market. Conversely, retirees drawing down an account can have great investment performance that looks like steady decline.
A return is only meaningful if it's adjusted for cash flows — deposits and withdrawals stripped out, so what's left is actual performance.
The fix: flow-adjusted returns
The idea is simple:
Investment gain = (ending balance − starting balance) − net deposits
In the example above: ($53,000 − $50,000) − $2,500 = $500 of real gain, on roughly $50,000 of invested money ≈ 1%, not 6%.
Finance professionals formalize this in two ways:
Money-weighted return (MWR)
The return your money actually experienced, accounting for when each deposit and withdrawal happened. A deposit made right before a rally boosts your MWR; one made right before a dip drags it down. This is the honest answer to "how did I do?"
Time-weighted return (TWR)
The return of the strategy, with the effect of cash-flow timing removed entirely. Fund managers report TWR because they don't control when clients add or remove money. It answers "how did the investments do?" — useful for comparing against the S&P 500, less personal.
For individual investors tracking their own progress, money-weighted (flow-adjusted) return is the number that matters: it reflects your actual dollars, your actual timing, your actual outcome.
A worked example
Say you start January with $10,000, deposit $1,000 on the 15th, and end the month at $11,300.
- Naive read: $10,000 → $11,300 = "+13%". Wrong.
- Flow-adjusted: gain = ($11,300 − $10,000) − $1,000 = $300. Your money earned roughly 3% — a good month, but a very different number than 13%.
Compound that mistake over years of steady contributions and you can convince yourself you're a great investor while underperforming a savings account.
Why most apps get this wrong
Computing flow-adjusted returns requires transaction-level data — every deposit, withdrawal, dividend, and transfer, per account — not just daily balances. Many net worth apps only pull balances, so a balance chart is all they can show. Others mix methods across screens, so the "return" on one page doesn't match another.
NetTrack computes a flow-adjusted return for every investment account, and your portfolio return is built from those same per-account numbers — one method, one basis, everywhere in the app. Deposits, withdrawals, and transfers between your own accounts never masquerade as performance. Dividends are tracked and counted as the returns they are.
How to check your own numbers
- Pick one account and one month.
- Write down the starting balance, ending balance, and every deposit/withdrawal in between.
- Compute: (end − start) − net deposits = true gain.
- Compare that to what your app is showing you.
If your app's "return" moves every time you contribute, it's showing you a balance chart with a percent sign on it.
Frequently asked questions
What is a flow-adjusted return?
A return calculated after removing the effect of deposits and withdrawals, so it reflects only investment performance. Money-weighted return is the standard formalization.
Should I use time-weighted or money-weighted return?
Money-weighted for tracking your own progress (it's what your dollars actually earned). Time-weighted for judging a strategy or comparing a manager to a benchmark.
Do dividends count as gains?
Yes — dividends are investment income and belong in your return. But a transfer of your own cash into the account does not. Good tracking distinguishes the two.
Why does my 401(k) provider show a different return than my balance growth?
Because your provider (correctly) adjusts for your contributions. The balance grew from both contributions and returns; the reported return strips contributions out.
Want to see how your portfolio is actually performing? NetTrack computes flow-adjusted returns for every account, automatically. Try it free.