Investing

IRR

Also known as: internal rate of return, XIRR.

IRR (internal rate of return) is the annual rate that equates the present value of an investment with all its cash inflows and outflows on their actual dates.

It's the right measure when you've added or withdrawn money irregularly, because it weighs how long each dollar has been invested.

The version that uses exact dates is called XIRR, and it's the one used by professional portfolio reports.

Example

A portfolio up 30% on contributions can have an IRR of 6% or 15% depending on whether the money went in ten years ago or last year.

Put it into practice

Related terms

Compound interest — Compound interest is the return generated on both the original principal and the interest already accumulated in prior periods.
Real return — Real return is the nominal return adjusted for inflation: it measures the actual increase in purchasing power.
Volatility — Volatility measures how much an investment's value swings around its average: higher volatility means bigger short-term ups and downs.

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Educational content. netclariq does not provide financial, investment, tax or legal advice.