XIRR vs IRR vs CAGR

Differences, Examples, and Which One to Use

Understanding XIRR vs IRR vs CAGR is essential when analyzing investment performance. These three financial metrics measure returns, but each one is designed for a different investment scenario. In this guide, you’ll learn the meaning, differences, formulas, examples, and best use cases for XIRR, IRR, and CAGR, explained in simple terms.

What is CAGR (Compound Annual Growth Rate)?

CAGR, or Compound Annual Growth Rate, represents the average annual growth rate of an investment over a specific period, assuming the investment grows at a steady rate every year.

CAGR Formula

CAGR = (Ending Value / Beginning Value)^1/n − 1

When to Use CAGR

• One-time (lump sum) investments
• Comparing long-term performance of stocks or mutual funds
• Situations with a single entry and exit point

CAGR Example

You invest €1,000 and after 3 years the investment grows to €1,500.

CAGR = (1500 / 1000)^1/3 − 1 = 14.47%

Pros and Cons of CAGR

• Pros: Easy to calculate, ideal for quick comparisons
• Cons: Assumes smooth growth, cannot handle multiple cash flows

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What is IRR (Internal Rate of Return)?

IRR, or Internal Rate of Return, is the annual rate at which the Net Present Value (NPV) of all cash flows equals zero. It assumes that cash flows occur at regular time intervals.

When to Use IRR

• Projects with fixed annual or monthly cash flows
• Capital budgeting and business investments
• Financial models with evenly spaced periods

IRR Example

Year	Cash Flow (€)
0	-1,000
1	+300
2	+400
3	+500

The IRR calculates the annual return assuming each cash flow happens exactly one year apart.

Pros and Cons of IRR

• Pros: Considers multiple cash flows and time value of money
• Cons: Not suitable for irregular investment dates

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What is XIRR (Extended Internal Rate of Return)?

XIRR, or Extended Internal Rate of Return, is an advanced version of IRR that calculates returns using actual transaction dates. It is the most accurate return metric for real-world investments.

When to Use XIRR

• SIP and recurring investments
• Mutual fund portfolios
• Stock market investments with multiple buy and sell dates
• Personal investment tracking in Excel or Google Sheets

XIRR Example

Date	Cash Flow (€)
01 Jan 2024	-1,000
15 Jun 2024	-500
10 Mar 2025	+1,800

XIRR provides the true annualized return by accounting for the exact timing of every cash flow.

Pros and Cons of XIRR

• Pros: Highly accurate, handles irregular cash flows
• Cons: Requires exact dates, slightly more complex

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XIRR vs IRR vs CAGR: Key Differences

Feature	CAGR	IRR	XIRR
Multiple cash flows	No	Yes	Yes
Irregular timing	No	No	Yes
Uses actual dates	No	No	Yes
Best for real-world investing	Limited	Moderate	Excellent

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Which Return Metric Should You Use?

• Use CAGR for single, lump-sum investments
• Use IRR when cash flows are evenly spaced
• Use XIRR for real-life investments with multiple dates

SEO tip: For personal finance blogs, investment tracking tools, and portfolio analysis, XIRR is the most commonly searched and practical metric.

Final Thoughts on XIRR vs IRR vs CAGR

While CAGR is great for quick comparisons and IRR works well for structured projects, XIRR offers the most realistic and accurate measure of investment returns. If you invest regularly or track portfolios in Excel or Google Sheets, XIRR should be your preferred choice.