XIRR vs IRR vs CAGR: Understanding the Differences
When should you use XIRR, IRR, or CAGR? Learn the differences between these three return metrics and choose the right one for your investment analysis.
The Three Return Metrics
Investors commonly encounter three return metrics: CAGR (Compound Annual Growth Rate), IRR (Internal Rate of Return), and XIRR (Extended Internal Rate of Return). Each serves a different purpose.
CAGR: The Simplest Measure
CAGR answers: What constant annual rate would turn my starting value into my ending value? It only requires two data points — start and end values — making it ideal for comparing fund performance or measuring portfolio growth over a fixed period.
IRR: For Regular Cash Flows
IRR calculates the discount rate that makes the net present value of cash flows equal to zero. It works best for periodic, evenly-spaced cash flows — like annual coupon payments or quarterly dividends.
XIRR: The Most Flexible
XIRR extends IRR by accounting for irregular dates. Use XIRR when cash flows don't follow a calendar schedule — private equity calls, real estate renovations, or any investment with unpredictable timing. Our XIRR calculator accepts comma-separated cash flows and dates for maximum flexibility.
Which Should You Use?
- Comparing two funds over 5 years → CAGR
- Annual dividend reinvestment analysis → IRR
- Private equity with irregular capital calls → XIRR