XIRR/CAGR: Investor's true performance indicator! (7)

Read? XIRR/CAGR: Investor's true performance indicator! (6)

Someone brought to my attention: "I finally found a good example on why using networth to measure XIRR can influence results. Ref. to buddy post."

"If your $3k stock become $1.5k after a year, the loss is 50%. Yet by injecting cash to sit idle in the portfolio, the poor performance has diluted to become XIRR=-30%. That will make the investor happier but it does nothing to his pocket. In fact, the poor performance could be diluted even further to -1% by injecting more cash to sit idle in the portfolio. "


Createwealth8888's way of using XIRR is to measure the true investing performance on our portfolio based investible capital and not to include VIRGIN cash idling somewhere as investible capital.

One way is to have dedicated bank account for investment purpose and only idle cash that has been previously invested in this account is included in XIRR measurement.

Only when this investment account runs out of money and you need money to buy new stock, you then transfer the exact amount of cash from other bank account to this investment account to pay the newly stock purchase. It is how you can keep VIRGIN cash outside your investment account.

We should never be in an illusion of better XIRR performanance by injecting cash in a falling Bear market to improve XIRR. It is nonsense!


Stock Investment Portfolio = Current stock value at market closing price + Investible cash available

 = Capital + Realized P/L + UnRealized P/L

and XIRR this stock investment portfolio to measure our investing skills


Read? Two Bank Accounts? No, You may need Four! - (4)

Now you may know why I need four bank accounts.