The two payments were not invested for the same length of time
The default schedule pays in 10,000 at the start and 5,000 a year later, then receives 18,000 at year two. Total in 15,000, total out 18,000, a gain of 3,000 — which looks like 20%. But the first 10,000 worked for two years and the second 5,000 for only one, so the annualised rate that actually reconciles those dates is 11.47%.
XIRR: the rate r where Σ cash flowᵢ / (1 + r)^(yearᵢ) = 0
XIRR finds the single discount rate at which every cash flow, discounted back to the start, sums to zero. There is no closed form; it is solved by iteration. That is the whole reason it exists — any calculation that simply divides gain by outlay ignores when the money went in, and for anything paid in over time that is most of the answer.
Regular investing is exactly the case simple returns get wrong
Someone investing monthly for ten years has money that has been working for ten years and money that has been working for a month. Dividing the total gain by the total invested treats them identically and understates the return substantially — often by a factor of nearly two for a long, steady contribution plan.
XIRR is the standard measure for this and is what fund platforms report for an individual’s account. It is also the right way to compare your own outcome against a fund’s published return, which is time-weighted and describes the fund rather than your contribution schedule.
Money leaving you is negative; money arriving is positive
Purchases, contributions and any outflow are entered as negative; sales, dividends, redemptions and the closing value are positive. Getting a sign wrong does not produce a warning — it produces a plausible-looking rate that describes a different investment entirely.
The series also needs at least one of each sign or there is no rate that makes the present value zero. And where the signs alternate more than once, the equation can have several mathematically valid solutions; the iteration returns one of them, and for such schedules the result should be treated with care.
Reinvestment at the same rate, and dates you entered accurately
Like any internal rate of return, XIRR assumes intermediate cash flows are reinvested at the XIRR itself. Where the rate is high, that assumption is optimistic, and the modified internal rate of return exists to replace it with an explicit reinvestment rate.
The timings carry as much weight as the amounts. Entering flows in whole years when they occurred mid-year shifts the answer, and for short overall horizons the shift can be large. Spreadsheet XIRR functions take actual dates for this reason; entering fractional years here is the equivalent and is worth doing precisely.
Frequently Asked Questions
How is XIRR different from IRR?
IRR assumes cash flows occur at equal, regular intervals (such as once a year). XIRR allows each cash flow to fall on its own date, so it handles uneven timing — exactly what real investing usually looks like.
How does the calculator find the rate?
It uses bisection: it brackets a range of rates where the net present value changes sign, then repeatedly halves the range until the present values net to essentially zero. This converges reliably without needing a starting guess.
Can XIRR be negative?
Yes. If you received back less than you invested relative to timing, the rate that balances the cash flows is negative, indicating an annualized loss.
Why does XIRR account for timing?
Money invested earlier has more time to compound than money invested later. By discounting each cash flow by its own year offset, XIRR gives later contributions appropriate weight, producing a fairer single rate.
What if my contributions are all on the same regular schedule?
Then IRR and XIRR will give the same answer. XIRR simply generalizes IRR to handle dates that are not evenly spaced.
Is XIRR the same as CAGR?
Not quite. CAGR works for a single lump sum from start to end. XIRR extends the idea to multiple cash flows at different times, which is why it is preferred for accounts with ongoing deposits and withdrawals.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Returns are assumptions, not guarantees. Actual results may vary because of market performance, taxes, fees, inflation, and timing. This is an educational projection, not investment advice.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Verified that the solved rate discounts every cash flow back to zero at its own date, checked against an independently written present-value function rather than the engine’s own.
Frequently Asked Questions now show on the page: 6 answers, checked in a page-by-page audit.
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