XIRR vs CAGR: Which One Measures Your Return?

CAGR (Compound Annual Growth Rate) assumes a single lump sum invested at the start, held untouched, and redeemed at the end. It is the smoothed annual rate that gets you from point A to point B. Formula: (End Value / Start Value)^(1/Years) − 1.

CAGR is ideal for assets you hold and don't touch: a stock position bought in 2018, a real estate purchase, or a benchmark index return starting at a specific date.

XIRR handles the reality of most investment accounts: multiple deposits over time, partial withdrawals, dividends, and irregular timing. It computes the single annualized rate that accounts for every cash event and its exact date.

Where CAGR has one start point and one end point, XIRR has as many anchor points as you have transactions.

For a single lump-sum investment with no additional contributions and no withdrawals, XIRR and CAGR are mathematically identical. If you put $10,000 in and never touch it, both metrics agree exactly.

This is actually the only scenario where CAGR is well-defined for a personal portfolio.

Add a second deposit, and CAGR becomes ambiguous (which start date do you use?). Add ten deposits over five years, and CAGR is essentially meaningless. XIRR remains well-defined regardless of how many cash flows exist.

The divergence is not just academic. An investor who dollar-cost averaged into the 2008 crash — buying more as prices fell — might show a much higher XIRR than a simple CAGR calculation would suggest, because the larger later deposits compounded through the recovery. CAGR, anchored to one start date, cannot capture this.

Use CAGR when: you have a single purchase with no other activity; you want to describe an asset's historical return over a defined period; you are comparing two indices over the same dates.

Use XIRR when: your account has multiple deposits or withdrawals at different dates; you want to know your personal return; you are computing what your brokerage account actually earned for you specifically. For any real portfolio with ongoing contributions, XIRR is the correct metric.