Understanding How DriveWealth Calculates Account Performance

Developer Guide — This document covers the Modified Dietz methodology used by DriveWealth to calculate account performance, how it maps to the Retrieve Account Performance API, and guidance for surfacing performance data to your end users.

The Modified Dietz Method

DriveWealth calculates the performance (rate of return) of each account using the Modified Dietz method. This is a widely used, industry-recognized approach for measuring how investments have performed over a given period of time, while fairly accounting for any money added or withdrawn along the way.

This document explains how it works, walks through a few examples, and compares it to other methods used across the industry.

Why performance calculation isn't as simple as it sounds

If a user never added or withdrew money, measuring return would be easy:

Return = (Ending Value − Starting Value) ÷ Starting Value

But in the real world, users deposit and withdraw funds throughout the period. A simple calculation can't tell the difference between growth from investments and growth from new money added. For example, if an account grew from $10,000 to $15,000, but $4,000 of that was a deposit, the investments only really earned $1,000 — not $5,000.

The Modified Dietz method solves this by weighting each cash flow by how long it was actually invested during the period.

The formula

The Modified Dietz formula for performance returns is:

R = (Bₑ − B₀ − C) ÷ (B₀ + W)

Where:

Weighted Cash Flows (W) Calculation:

W = Σ [ Cᵢ × (T − tᵢ) ÷ T ]   (summed over each cash flow i = 1 to n)

Where:

In plain terms:

• The numerator (Bₑ − B₀ − C) is the actual investment gain — the ending balance minus what was there at the start and minus any money put in or taken out.
• The denominator (B₀ + W) is the "average invested capital" — the starting balance plus deposits/withdrawals adjusted for how long they were in the account.

A deposit made early in the period (small tᵢ) is weighted heavily, because (T − tᵢ) ÷ T is close to 1 — it was invested almost the whole time. A deposit made on the last day (tᵢ = T) carries a weight of 0 and barely counts toward the return, because it had almost no time to earn anything.

Example 1: A simple period with no cash flows

Scenario — A 30-day month, no deposits or withdrawals.

R = (Bₑ − B₀ − C) ÷ (B₀ + W)
  = (10,500 − 10,000 − 0) ÷ (10,000 + 0)
  = 500 ÷ 10,000
  = 5.0%

With no cash flows, Modified Dietz gives the same simple, intuitive answer you'd expect: 5.0%.

Example 2: A deposit mid-period

Scenario — A 30-day month. A deposit of $5,000 on Day 15 (halfway through).

Step 1 — Compute the weighted cash flow (W). The deposit's time from the start of the period is t₁ = 15 of T = 30 days:

W = C₁ × (T − t₁) ÷ T
  = 5,000 × (30 − 15) ÷ 30
  = 5,000 × 0.50
  = 2,500

Step 2 — Apply the formula.

R = (Bₑ − B₀ − C) ÷ (B₀ + W)
  = (16,000 − 10,000 − 5,000) ÷ (10,000 + 2,500)
  = 1,000 ÷ 12,500
  = 8.0%

Even though the raw account value jumped by $6,000, the investments only earned $1,000. Because the $5,000 deposit was only invested for half the period, it counts as $2,500 of "average invested capital" — producing a fair return of 8.0%.

Example 3: The timing of the deposit matters

Same numbers as Example 2 ($1,000 of actual gain), but with different deposit timing:

This illustrates the core idea: money that was invested longer carries more weight. A deposit on the last day shouldn't get "credit" for the whole period's growth — and Modified Dietz ensures it doesn't.

Pros and cons of the Modified Dietz Method

Advantages

• Fairly accounts for cash flows. Deposits and withdrawals are weighted by time invested, so the return reflects investment performance — not just money moving in and out.
• No need for daily valuations. It only requires the beginning value, ending value, and the dates/amounts of cash flows. This makes it practical, transparent, and reproducible.
• Industry-standard and GIPS-recognized. Modified Dietz is explicitly permitted under the Global Investment Performance Standards (GIPS) for periods without daily pricing, making it a credible and accepted methodology.
• Easy to understand and audit. The inputs are simple and the math can be verified by hand.

Limitations

• It's an approximation. Modified Dietz assumes a constant rate of return across the period. It doesn't capture exactly when market gains and losses occurred relative to cash flows.
• Less accurate with large cash flows in volatile markets. If a big deposit occurs right before a sharp market move, the time-weighting approximation can diverge from the true return.
• Money-weighted by design. Because the result is influenced by the size and timing of cash flows, it measures the personal investor experience rather than the pure performance of the underlying investments. (This can be a pro or a con depending on what you want to measure — see below.)

How this compares to the rest of the industry

There are three broad families of performance calculation. Modified Dietz is a practical middle ground.

1. Simple Return

• What it is: (End − Start) ÷ Start, ignoring cash flow timing.
• Trade-off: Easy, but misleading whenever money is added or withdrawn. Rarely used on its own for client reporting.

2. Money-Weighted Return (MWR / IRR) — the family Modified Dietz belongs to

• What it is: Measures the return on the actual dollars invested, accounting for the timing and size of cash flows. The most precise version is the Internal Rate of Return (IRR), which requires iterative computation.
• Modified Dietz is a simplified, closed-form approximation of IRR — it captures most of the benefit without the computational complexity.
• Best for: Showing the personal investor experience — what specific decisions and timing actually earned.
• Used by: Most retail brokerages and robo-advisors for individual account-level returns. Required for client reporting under regulations like the EU's MiFID II.

3. Time-Weighted Return (TWR)

• What it is: Removes the impact of cash flow timing entirely by breaking the period into sub-periods at each cash flow and chaining (geometrically linking) the sub-period returns.
• Best for: Comparing the skill of a fund or portfolio manager, because it isolates investment performance from the client's deposit/withdrawal decisions.
• Trade-off: Requires a portfolio valuation at every cash flow date, which is more data-intensive.
• Used by: Mutual funds, ETFs, and investment managers reporting a strategy's "official" performance, and is the GIPS-preferred standard for composite manager performance.

Quick Comparison

The bottom line

DriveWealth uses Modified Dietz because it strikes the right balance for individual investors:

• It fairly reflects personal returns, accounting for when money was added or withdrawn.
• It is transparent, reproducible, and industry-accepted under GIPS.
• It doesn't require complex daily valuations, making it reliable and easy to explain.

In short, it answers the question most investors actually care about: "Given the money I put in and when I put it in, how did my investments actually perform?"

Fetching account performance from the API

The DriveWealth Retrieve Account Performance endpoint returns end-of-day performance data per account, including balances, cash flows, and the Modified Dietz rate of return for each period in the time series.

Endpoint

GET https://bo-api.drivewealth.io/back-office/accounts/{accountID}/performance-returns

Required Parameters

Frequency validation rules:

• Range ≤ 90 days: D, W, or M
• Range > 90 days and ≤ 12 months: M only
• Range > 12 months: M or Y

Example request

curl --request GET \
     --url 'https://bo-api.drivewealth.io/back-office/accounts/{{ACCOUNT_ID}}/performance-returns?frequency=D&from=2025-11-11&to=2025-11-18' \
     --header 'accept: application/json' \
     --header 'authorization: Bearer {{YOUR_ACCESS_TOKEN}}' \
     --header 'dw-client-app-key: {{yourAppKey}}'

Example response

{
    "accountID": "2345fb7a-8daf-44d7-b813-3840bc985a47.1634583495394",
    "accountNo": "ABCD005972",
    "startDate": "2025-11-11",
    "endDate": "2025-11-18",
    "lastUpdated": "2025-11-18",
    "timeSeries": [
        {
            "date": "2025-11-11",
            "gainLoss": 7.18,
            "positionBalance": 2273.33,
            "cashBalance": 46.38,
            "marketValue": 2319.71,
            "cashFlows": 0.00,
            "deposits": 0.00,
            "withdrawals": 0.00,
            "fees": 0.00,
            "income": 0.00,
            "rateOfReturn": 0.003104
        },
        {
            "date": "2025-11-12",
            "gainLoss": 5.08,
            "positionBalance": 2278.41,
            "cashBalance": 46.38,
            "marketValue": 2324.79,
            "cashFlows": 0.00,
            "deposits": 0.00,
            "withdrawals": 0.00,
            "fees": 0.00,
            "income": 0.00,
            "rateOfReturn": 0.002188
        }
    ],
    "summary": {
        "beginningMarketValue": null,
        "beginningPositionBalance": null,
        "beginningCashBalance": null,
        "endingMarketValue": 2266.53,
        "endingPositionBalance": 2220.15,
        "endingCashBalance": 46.38,
        "periodGainLoss": null,
        "periodCashFlows": 0.00,
        "periodDeposits": 0.00,
        "periodWithdrawals": 0.00,
        "periodFees": 0.00,
        "periodIncome": 0.29,
        "periodReturn": -0.022925,
        "mtdReturn": -0.018631,
        "ytdReturn": 0.120243,
        "inceptionReturn": -0.999999,
        "1yearReturn": 0.092667,
        "3yearReturn": -0.999999,
        "5yearReturn": null
    }
}

Note: mtdReturn, ytdReturn, 1yearReturn, 3yearReturn, 5yearReturn, and inceptionReturn will return null when values are not available for those time periods, even within a 200 response.

Building a performance UI for end users

Displaying Account Value Over Time

To chart how an account's total value has changed over time, use the marketValue field from the time series. This represents the ending cash + position balance of the account for each period.

Displaying Gain / Loss Over Time

To chart the change in account value after accounting for deposits and withdrawals, use the gainLoss field. This strips out the effect of cash flows so the chart reflects true investment performance — not just money moving in and out.

Displaying a Rate of Return

When showing a rate of return, display a single figure corresponding to the time frame of the associated graph. Use periodReturn from the summary object, and convert from decimal to percentage for display.

Example — 1-week period:

periodReturn = 0.000277 → display as 0.0277%

What to tell your users: "This return shows how your investments performed during the selected period, adjusted for any deposits or withdrawals you made. It uses the Modified Dietz method, an industry-standard calculation that ensures your contributions don't artificially inflate or deflate your returns."

Frequency Options

Weekly note: If a Wednesday date is passed in from, it is adjusted to that Monday. If a Wednesday is passed in to, it is adjusted to that Friday. The date returned in the array is always the Friday date.

Monthly note: Pass only year and month values in from/to. The API calculates full calendar months regardless of day values.

Yearly note: Pass only year values in from/to. The array returns one record per year, with the last record ending on the most recently calculated performance date.