Your return will generally be higher using the __________ if you time your transactions poorly and your return will generally be higher using the __________ if you time your transactions well.
A) dollar-weighted return method; dollar-weighted return method
B) dollar-weighted return method; time-weighted return method
C) time-weighted return method; dollar-weighted return method
D) time-weighted return method; time-weighted return method

Question

Quizplus · Accepted Answer

The time-weighted return method is the best choice for comparing the performance of investment managers because it measures the compound rate of growth in your portfolio assuming that you invested all of your money at the beginning of the period and left it there. This method is less affected by the timing and size of cash flows, making it useful for evaluating investment performance. Therefore, if you time your transactions well (i.e., you invest all your money at the beginning and leave it for a while), you will get a higher return using the time-weighted return method. On the other hand, if you time your transactions poorly (i.e., you invest and withdraw money frequently), you run the risk of getting a lower return using the time-weighted return method. In such a case, the dollar-weighted return method may be more appropriate as it considers the impact of cash flows on your investments.

Your Return Will Generally Be Higher Using the __________ If