aikapainotetun

Aikapainotetun is a Finnish term that translates to "time-weighted" or "time-weighted average" in English. It is most commonly used in the context of investment funds and financial performance. A time-weighted rate of return is a method of calculating the performance of an investment that accounts for cash flows into and out of the investment. This is crucial because when an investor adds or withdraws money, it can distort the overall return if not properly adjusted.

The calculation of a time-weighted return involves breaking down the total investment period into sub-periods based on the dates of all cash flows. The return for each sub-period is then calculated. Finally, these sub-period returns are geometrically linked to arrive at the overall time-weighted return for the entire period. This method ensures that the performance reflects the skill of the investment manager rather than the timing of investor contributions or withdrawals.

In contrast, a money-weighted return (or internal rate of return) gives more weight to cash flows that occur when the investment's value is higher, and less weight to cash flows that occur when the value is lower. Therefore, for evaluating the performance of a fund manager, the time-weighted rate of return is generally considered the more appropriate and widely accepted standard. It provides a more accurate and consistent measure of how well the underlying investments have performed, independent of external cash flow events.