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Canadian Investing / Canada - Microcaps


Subject:  Re: fees Date:  11/23/1999  9:22 AM
Author:  Jacko2 Number:  705 of 3296

IRR stands for "internal rate of return". I think it measures the same thing as CAGR, but it takes into account any cash inflows to or outflows from the portfolio that happened during the period being measured. In Excel or Quattro Pro, look for a function called "XIRR". There's a column by Robert Sheard in the Fool archives, from 1998, where he shows how to set up a spreadsheet to use the function. You set up two columns, the left hand one for the dates: at a minimum a balance forward date and then the period end date. In between will be all the additions or subtractions you made in the account; for example, in a retirement account, new money (or securities) going into the account, but not, say, income or dividends that arise from investments already in the account. (At least, that's what I do; I might be wrong about not inputting the interest or dividends received, but I find that to be a pain.)

The right hand column lists the money amounts: balance forward, balance at end, and all the incoming or outgoing amounts. The end balance has to be a negative number. Put the function (@XIRR in Quattro Pro) in the right hand column underneath the last number, and give it the two ranges as parameters.

You might have heard of the Beardstown Ladies, an investment club who got caught on this one. They measured return including all the money they added. So, they started with $100, added $10 during the year, and end the year with investments totalling $120, so they reported a gain of 20%. No. My spreadsheet gives an IRR of 9.53% (on a one-year time frame, with the addition coming on July 1).

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