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Glossary term

XIRR (Extended Internal Rate of Return)

Also called: xirr, extended internal rate of return, irr on dates, money weighted return.

XIRR is an annualised rate of return. It works on cash flows that happen on set calendar dates. It is the rate that makes those flows sum to zero in present-value terms. A simple start-to-end growth rate ignores the dates. XIRR uses the actual date of every contribution, every withdrawal and the closing valuation. So money put in for only part of the period is credited only for that time.

How it is read

XIRR is the right measure whenever amounts move in or out at uneven times. The recurring-contribution case is the common one. By convention the investor's outflows are entered as negative. Receipts and the closing valuation are entered as positive. The series needs flows of both signs for a solution to exist at all. Spreadsheet tools solve it by repeated trial on an actual-days basis. That makes the dates entered matter as much as the amounts. A wrong date gives a wrong rate.

What it does not tell you

Unusual cash-flow patterns can give XIRR more than one mathematical answer. They can also fail to converge at all. An error returned by a solver means the calculation did not resolve. It does not mean the return was zero. It is a money-weighted figure. So it reflects the timing of the money put in as much as the investment itself. It is not directly comparable with a time-weighted rate. Like any historic rate it describes the past. It carries no assurance about the future.

CAGR (Compound Annual Growth Rate)

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Drawdown

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Expectancy

Definition →Track

Investing money, not trading it

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Reference. Microsoft Support - XIRR uses actual payment dates on a 365-day basis and requires at least one negative and one positive cash flow.
The lesson that uses this term

CAGR, XIRR and Absolute Return: Three Answers About One Account

Absolute return is the total change from start to end. It says nothing about time. CAGR turns that total into one steady yearly rate. It is honest only when no money moved in or out along the way. XIRR uses the date of every contribution and withdrawal. So XIRR is the one that fits a schedule of payments. Same account, three numbers, three different questions.

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