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Deposit & Withdrawal

Deposits and withdrawals track the movement of cash into and out of a broker account. They do not involve any asset — only the cash balance changes.

🔑 Key Properties

Property Deposit Withdrawal
Code DEPOSIT WITHDRAWAL
Cash effect ⬆️ Increases balance ⬇️ Decreases balance
Asset effect — —
Tax event No No

📊 Why They Matter

📐 Money-Weighted Return

Deposits and withdrawals are critical for computing money-weighted return (MWR / IRR). Without tracking cash flows, it's impossible to distinguish between returns generated by the portfolio and returns caused by adding/removing cash.

\[ 0 = \sum_{i=0}^{n} \frac{CF_i}{(1 + r)^{t_i}} \]

where \(CF_i\) is each cash flow (deposits positive, withdrawals negative, final value positive).

📊 Time-Weighted Return

Time-weighted return (TWR) eliminates the effect of cash flows by computing returns between each cash flow event and chaining them:

\[ R_{TWR} = \prod_{i=1}^{n} (1 + r_i) - 1 \]

This gives a "pure" portfolio performance measure, independent of deposit/withdrawal timing.