Core Viewpoint - Understanding the three types of returns—cumulative return, money-weighted return, and time-weighted return—can help investors grasp how their investments are performing and the impact of their trading decisions [5][6]. Group 1: Cumulative Return - Cumulative return answers the question of whether the overall investment is profitable or not, providing a straightforward percentage of profit or loss [8][12]. - For example, if an investor puts in 50,000 in January and another 50,000 in July, ending the year with 120,000, the cumulative return would be 20% calculated as (120,000 - 100,000) / 100,000 [10][12]. Group 2: Money-Weighted Return - Money-weighted return considers all buying and selling actions, including timing and amounts, to provide a true measure of investment performance [16]. - In the previous example, the first 50,000 invested has a weight of 1, while the second 50,000, invested for only half the year, has a weight of 0.5, leading to a recalculated principal of 75,000 [21][23]. - The money-weighted return in this case is 26.6%, which needs to be compared with the time-weighted return to assess trading effectiveness [24][26]. Group 3: Time-Weighted Return - Time-weighted return measures the fund's performance independent of the investor's trading actions, focusing solely on the product's ability to generate returns [27][33]. - In the same example, if the total investment remains 100,000 and the fund earns 20,000, the time-weighted return is calculated to be 30.9% [37]. Group 4: Comparison of Returns - A higher money-weighted return compared to the time-weighted return indicates that the investor's trading actions positively impacted returns, while a lower money-weighted return suggests that frequent trading may have been detrimental [36][38]. - In the example, the money-weighted return is lower than the time-weighted return, indicating that the investor's decision to invest more at a high point was not beneficial [39]. Group 5: Investment Strategy - To mitigate the risks associated with emotional trading and market timing, a recommended strategy is to adopt a systematic investment approach, such as dollar-cost averaging [44][50]. - This strategy helps in averaging the cost of investments over time, reducing the likelihood of investing heavily at market peaks and enhancing overall investment performance [45][48].