Sunday, 29 January 2017

Sequel to CAGR, XIRR simplified

A sequel to my previous post.

Can I make use of XIRR's value to help in my investment portfolio goal setting?

Think come, think go... cannot leh. :(

WHY?

Because XIRR % is like a report card grade which shows how my portfolio has performed over a fixed period of time, say last year. However, it is not practical to set a goal based on the % or confer a meaning to it as the current market value of my portfolio is controlled by Mr Market (although you may argue investment timing matters *cough cough*). So on sunny days, XIRR is good and on rainy days, XIRR is bad.

Notwithstanding the fact that data punching is going to be tedious for the value to be accurate. Diligence... hmm...

Before I put XIRR completely out of picture...

XIRR calculation might be meaningful IF you want to compare some 'investment products' like structured deposit, RSP, Investment-linked insurance or unit trust to see how well their returns fair against stock, ETF or simply inflation within a fixed time period. (I should do that for my POSB Home Balance Fund!)

Another use for it - if you have been actively injecting cash into Investment A and did not inject / inject cash at different intervals for Investment B, you could use their XIRR figures to give you an objective idea of how your Investment A's annualized return compares with Investment B's.

You could also use XIRR to compare your overall portfolio performance last year versus this year. So you can chart a Y-O-Y XIRR hehe!

In my conclusion, the XIRR figure is not very useful on its own but is good to use as a comparison data. Do let me know if you have a different opinion. :)

***

4 comments:

  1. It can be used as reality check based on our past investing performance and judge whether we can still be on target to our financial independence either by injecting more capital or higher yield/capital appreciation across future market cycles. How much more? How far to go?

    ReplyDelete
  2. Rainbow coin,

    Nothing is sexier than a girl who can think on her own!

    But I think your "jie-jies" got tell you its better to play "dumb" in front of men, and only after he has put a ring on you will you reveal you're smarter than him ;)

    Men have very fragile egos. Just look how we debate over trivial details... LOL! I hope I'm not the only one having fun!


    I am well trained by the women in my life. Men see the trees but miss the forest. If I woman, I instinctively know who is the better marriage material if I am gold digger practical:

    1) A man who owns a $30 million landed property fully paid but no passive income versus one who lives in HDB but got $100K passive income per year.

    2) A man who only tells you his wealth and income in percentages versus one who shows you his bank account and salary slip in dollars and cents.

    3) A man who loves his career choice versus one who is using office politics as an excuse.

    4) A man who is generous to others versus one who is frugal.


    I think you get my drift ;)

    What women want and what men think women want are two different thing!

    ReplyDelete
  3. Hi SMOL,

    I am not trying to be smart here, I am just testing out if my understanding of the concept is right.

    Maybe I tend to think like a guy... Trouble...

    Play dumb so that we can see who's dumber (or smarter)? Do smart guys like dumb girls? LOL.

    ReplyDelete
    Replies
    1. Rainbow girl,

      Men like to over complicate things just to avoid making a decision. There is a need to "justify" our decisions.

      Women's strength is intuition. And you don't need to explain your decisions. The important thing is you have already decided ;)


      Do we need to calculate to 2 decimal places to know whether we are competent in investing?

      Think about it for a moment ;)



      Lao Lee is one of those few and rare men who are OK with wife being smarter than him. For most of his political life, wife earns more than him... He even joked he is a "kept man".

      Men with high self-esteem are not afraid of smart girls ;)

      Delete

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