Cost basis, TTWROR, IRR: the 3 metrics that measure your real portfolio performance

Your portfolio is up since the start of the year. Good news. But is that because your picks were good, or because you deposited a lot of fresh cash at the right time? And on a specific position, are you actually in the green once fees are counted in?

Those are three different questions, and each needs a different metric: cost basis (what you actually paid for a position, aka PRU), TTWROR (the pure performance of your strategy, independent of your deposits), and IRR (the real return on your own money, deposits included). Mixing them up, or worse tracking none of them, means flying blind. Here's what each one measures, why it exists, and how to calculate it.

Cost basis (PRU)

Definition. Your cost basis is the average price you paid for the shares you currently hold on a given position, fees and taxes included.

Why it exists. Without a cost basis, you can't actually tell whether you're up or down on a position: the price your broker shows says nothing about what you paid to get in. It's also the number tax authorities use to calculate your taxable capital gain when you sell.

Formula, plain English.

Cost basis = (Sum of all purchases of the asset + Fees + Taxes) / Total quantity held

One key detail: on a partial sale, your cost basis doesn't move, only the quantity held goes down. You only get a new cost basis when you buy more shares.

Worked example. You buy 10 shares at $100 ($1,000) plus $5 in fees → total cost $1,005, cost basis = $100.50. Three months later you buy 5 more shares at $120 ($600) plus $3 in fees → $603 for that purchase. Your cumulative cost is now $1,608 for 15 shares, giving a new cost basis of $107.20. If you sell 5 of those shares the following month, your cost basis stays at $107.20, only your holding drops to 10 shares.

TTWROR (Time-Weighted Rate of Return)

Definition. TTWROR measures the pure performance of your portfolio (the performance of your actual investment decisions) by completely removing the effect of your deposits and withdrawals.

Why it exists. A portfolio that grows because you added $10,000 to it isn't "performing better" for that reason. TTWROR strips that out. It's the standard metric fund managers use to compare strategies against each other, since they don't control when investors' money flows in or out.

Formula, plain English. Split the timeline into sub-periods every time a flow (deposit or withdrawal) happens. For each sub-period, calculate a return that isolates the flow:

Sub-period return = (Ending value − Flow) / Starting value

Then chain the sub-periods together by multiplying:

TTWROR = (1 + R1) × (1 + R2) × ... − 1

Worked example. Your portfolio starts at $10,000. For 6 months the market is flat: R1 = 0%. You then add $10,000 more, right before the market rises 10% over the next 6 months: R2 = +10%. TTWROR combines both: (1 + 0) × (1 + 0.10) − 1 = +10%. It doesn't matter how much you deposited or when: the strategy itself returned 10%.

IRR (Internal Rate of Return)

Definition. IRR measures the real annualized return earned by your money specifically, deposits included, at the exact time you made them.

Why it exists. Unlike TTWROR, IRR is meant to reflect your personal experience as an investor: if you deposit a large sum right before a rally, your IRR captures that timing luck, even if the underlying strategy only returned 10% on a pure basis.

Formula, plain English. IRR is the discount rate that makes the net present value (NPV) of all your cash flows equal zero (deposits as negative, ending value as positive). Because flows happen on irregular dates, this calculation (also called XIRR) is solved by successive approximation: the Newton-Raphson algorithm is the standard method.

Worked example. Same scenario as above: you invest $10,000 at t=0, then $10,000 more at 6 months, ending at $22,000 after 1 year. Solving NPV = 0 for these flows (−$10,000 at t=0, −$10,000 at t=0.5, +$22,000 at t=1) gives an IRR of roughly 13.2%, noticeably higher than the 10% TTWROR, because your second deposit landed right before the rally and therefore "caught" the gain faster.

TTWROR vs IRR: which one should you use?

Both metrics are correct, they just answer different questions.

In this example, TTWROR's 10% says "the strategy returned 10%, full stop." IRR's 13.2% says "you personally earned 13.2% on your money, because your deposit timing worked in your favor." Neither one is "more right", but confusing them means you risk crediting (or blaming) your strategy for something that's actually just the luck of your own deposit timing.

Anelior calculates all three automatically

These calculations are tedious to do by hand, which is exactly why most active investors don't track them properly. On Anelior, cost basis, TTWROR, and IRR are calculated automatically for every position and for your portfolio as a whole, built on a verified double-entry accounting model (every transaction generates a cross-posted cash/securities movement, not just a "you own X shares" line).

The fastest way in: if you already track your portfolio in Portfolio Performance, Anelior imports your full history directly and recalculates all three metrics in minutes, no manual re-entry required.