Which weighted return allows investors to measure how much money they have earned on their investment?

The dollar-weighted return is important for investors because it represents the actual dollar gain or loss from their investments, reflecting the specific cash flows and the timing of those cash flows. This measurement takes into account the amount of money invested and when it was invested, allowing for a precise calculation of how much an investor has earned in monetary terms.

In calculating the dollar-weighted return, significance is placed on the timing and amount of each cash flow. For instance, if an investor contributes more money at a time when the investment performs well, the dollar-weighted return will likely reflect a higher overall return compared to a simple average of returns which may not account for these variances in investment timing.

This contrasts with other types of returns, such as time-weighted returns, which consider the performance of an investment independent of the timing of cash flows, making them less suitable for measuring actual earnings in cash terms from an investor's perspective.