As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

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Tuesday, 2 August 2011

XIRR is really simple to use!

Read? How are you measuring up with your investment return? (2)

Read? Have you started using CAGR or XIRR to measure your portfolio performance?

You just need to seperate into two different worksheets in your MS Excel file for 1) detailed recording of transactions and tracking of portfolio and 2) measuring of portfolio performance and returns on capital using XIRR.

Here are snapshots of examples:

Portfolio Tracking



XIRR



Sometime, two steps are simpler than one step for all. Believe it or not.

4 comments:

  1. Hi CW, kindly check for the use of XIRR, you measure the portfolio performance since the start of your investment or on yearly basis?

    I have learnt to use XIRR from your blog but wondering hard in my mind on the use of XIRR is to measure the performance of one's portfolio on a yearly basis or since start of investment.

    Currently I use on yearly basis to know how my portfolio performance when compare to previous year. Is it right to use this way?

    ReplyDelete
  2. Hi 1000 Miles,

    No problem with year-on-year XIRR or XIRR since investment as we just need to know how are we doing with our current investing strategies and benchmark this XIRR value against our investing goals.

    E.g. our investing goals may be

    1. Beating inflation of 4%
    2. Beating average market returns of 8%
    3. Double current portfolio in 10 yrs without adding capital
    4. etc.

    If XIRR is too low, then we may need to revise our investing strategies; otherwise we may not meet our investing goals.

    Generally, we would like to see this XIRR value to be more positive year after year and trending upwards. :-)

    ReplyDelete
  3. Hi CW,
    Thanks for your advise and valuable knowledge.

    Ya, I managed to beat the increasing inflation and my target return.

    Another question is on CAGR. How would you calculate CAGR if there is continue increase in capital over the years? Is it (portfolio value over total capital to date) to the power (1/years investing) -1?

    Appreciate your advise. 10U

    ReplyDelete
  4. Hi 1000 Miles,

    For investors who are still injecting new investing capital into their portfolio should use XIRR.

    For those not adding more capital, can choose either XIRR or CAGR. CAGR is commonly used when XIRR was not developed yet.

    Since MS Excel is commonly used, stick to XIRR

    ReplyDelete

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