A sequel to my previous post.
Can I make use of XIRR's value to help in my investment portfolio goal setting?
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. :)
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