What is XIRR?

Most investors look at account growth: "I started with $50,000, I have $72,000 now — that's 44%." But this number ignores the pattern of your contributions. If you added $20,000 right before a market peak, that money had far less time to compound than your original investment. A raw percentage hides this entirely.

XIRR solves this by treating every cash flow as an individual event, each with its own date. It finds the single annualized rate that, when applied to all your deposits and withdrawals, explains your exact ending balance.

XIRR is the rate r that makes the net present value of all your cash flows equal to zero. Each deposit is a negative cash flow (money leaving your pocket), each withdrawal is positive, and your current portfolio value is treated as a final positive cash flow at today's date.

The formula is solved iteratively — there is no closed-form algebraic answer. XIRR Auditor uses the Newton-Raphson method with multiple starting guesses to converge on the correct rate, including for portfolios deeply in the red.

XIRR is an annualized, money-weighted return. Annualized means it is expressed as a yearly rate, so you can compare a 3-year portfolio against a 7-year portfolio on equal footing. Money-weighted means bigger deposits count more — if you put in $100,000 two years ago and $5,000 last month, the bulk of your XIRR is driven by what happened to that $100,000.

This is the number that reflects your actual financial outcome, not just what the market did in isolation.

You deposit $10,000 in January, then $5,000 in July, and your account is worth $17,500 in December of the same year. A naive calculation gives $17,500 / $15,000 − 1 = 16.7%. But XIRR accounts for the July deposit arriving mid-year with less time to compound — and returns a higher annualized figure that more accurately reflects the growth of your earliest dollars.

The difference grows dramatically as your investing history gets longer and more irregular.

XIRR is most valuable when your investing pattern is irregular: lump-sum deposits, variable DCA amounts, partial withdrawals, or years of dormancy followed by active contributions. The bigger and more irregular your cash flows, the more a simple return calculation will mislead you.

For a portfolio with a single investment and no other activity, XIRR and CAGR produce the same number. But very few real portfolios look like that.