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XIRR - What's the target?

A helpful place to also put any annual reports etc, of your own portfolios
EssDeeAitch
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XIRR - What's the target?

#275296

Postby EssDeeAitch » January 5th, 2020, 2:03 pm

I have unitised my various pf's and also applied the XIRR calculations to them. The XIRR rates for Mr & Mrs SDH are 11% and 16.5% respectively which I feel are very acceptable indeed.

My question is simple, what do other Fools think is a good enough XIRR? I do appreciate that this value will be different from person to person (perhaps even pf to pf).

Your comments appreciated.

tjh290633
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Re: XIRR - What's the target?

#275301

Postby tjh290633 » January 5th, 2020, 2:41 pm

It will vary a lot, from year to year. Back in the previous century, when inflation and interest rates were higher, I varied between 11% and 13%, but after the dot-com bubble it settled down, and now hovers about 10% over the 30 odd years.

The market has its ups and downs, but the further down the road you go, the less effect they have. I have some data on my PC which relates to my accumulation unit from each year end to the present day. I'm watching the Test Cricket at the moment, but will maybe post that table later.

TJH

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Re: XIRR - What's the target?

#275305

Postby Mordko » January 5th, 2020, 3:12 pm

EssDeeAitch wrote:I have unitised my various pf's and also applied the XIRR calculations to them. The XIRR rates for Mr & Mrs SDH are 11% and 16.5% respectively which I feel are very acceptable indeed.

My question is simple, what do other Fools think is a good enough XIRR? I do appreciate that this value will be different from person to person (perhaps even pf to pf).

Your comments appreciated.


XIRR for one year means little. Comparisons should be against an appropriate benchmark with the same asset allocation; otherwise they mean nothing at all. Time weighted return is a better way to compare vs benchmark and measure how your allocation is performing.

Dod101
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Re: XIRR - What's the target?

#275311

Postby Dod101 » January 5th, 2020, 3:48 pm

Who says we are comparing our own XIRR with anything else? That was not the question and anyway I am investing for myself and am not being judged against anyone else. I might like to see how I am doing against an index, say the FTSE100 but I am not investing only in FTSE100 shares so some would say it is meaningless. If over a period of say 5 years you are not at least exceeding inflation you might be better just to buy a tracker.

My overall portfolio return for 2019 was 14.5% using XIRR so is in the same ballpark as yours but then 2018 was negative 10.8%.

Dod

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Re: XIRR - What's the target?

#275318

Postby Mordko » January 5th, 2020, 4:20 pm

The purpose of calculating returns is to confirm that the portfolio is designed well. This is done by comparing against appropriate benchmarks.

If all you are interested in is “how much money do I have?” then all you need to do is to look at the total.

If you are trying to estimate expected returns then XIRR for this year is utterly irrelevant.

The other possible objective is to brag. And then listing some meaningless numbers is a really good approach.

EssDeeAitch
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Re: XIRR - What's the target?

#275326

Postby EssDeeAitch » January 5th, 2020, 5:10 pm

There seems to be some real negativity regarding the use of XIRR. If it is irrelevant, meaningless and unhelpful, then why is it mentioned so often as a tool on various HYP posts?

I have no opinion either way on XIRR but have had my curiosity piqued and have subsequently done the calculation and asked the community for help in interpreting the results.

Mordko has been extremely helpful in telling me that it it is used by people to brag (he cannot mean me I feel sure) and I will cherish that piece of advice for a long time. He also says that time weighted returns are a better way to measure performance and this is something I already do but "what alternative measures are better than XIRR" was not the question.

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Re: XIRR - What's the target?

#275329

Postby Mordko » January 5th, 2020, 5:26 pm

Your question can’t be answered with the information provided. If you are 100% in British and international stocks then you underperformed the market this year. I am 80% in stocks and the return was 20%, which is 2% better than the benchmark. Underperformance or over performance in a single year means nothing; there could be a good reason for it.

If you are mostly in bonds then your investment outperformed.

The answer to your question is that XIRR by itself, without specifying asset allocation and the level of risk you are taking, is completely meaningless except to brag.

tjh290633
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Re: XIRR - What's the target?

#275338

Postby tjh290633 » January 5th, 2020, 5:59 pm

Just to illustrate the variability of XIRR, here is the list of values for my accumulation units for the periods since successive year ends from 31 Dec 1998 to the present time, for periods from 21 years down to 1 year, as indicated:

Since        Acc Unit   IRR   
31-Dec-98 5.89 7.89%
30-Dec-99 6.85 7.49% 20 years
31-Dec-00 6.68 8.04%
31-Dec-01 6.43 8.74%
31-Dec-02 5.23 10.60%
31-Dec-03 6.38 9.92%
31-Dec-04 7.59 9.35% 15 years
30-Dec-05 9.69 8.15%
31-Dec-06 12.25 6.87%
31-Dec-07 12.41 7.34%
31-Dec-08 7.41 13.21%
31-Dec-09 10.24 10.98% 10 years
31-Dec-10 12.32 10.00%
31-Dec-11 13.45 10.09%
31-Dec-12 15.80 9.09%
31-Dec-13 19.56 6.82%
31-Dec-14 20.34 7.39% 5 years
31-Dec-15 21.42 7.91%
31-Dec-16 24.37 6.04%
29-Dec-17 26.70 4.33%
31-Dec-18 24.06 20.58% 1 year

As you can see, the value depends on the value of the unit at the start date, so the effects of the aftermath of the dot.com boom is evident, as is the effect of 2008. As I said before, the IRR since April 1987 is 9.96%.

Do not be surprised if you find variations as you go along.

TJH

EssDeeAitch
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Re: XIRR - What's the target?

#275345

Postby EssDeeAitch » January 5th, 2020, 6:16 pm

tjh290633 wrote:Just to illustrate the variability of XIRR, here is the list of values for my accumulation units for the periods since successive year ends from 31 Dec 1998 to the present time, for periods from 21 years down to 1 year, as indicated:

Since        Acc Unit   IRR   
31-Dec-98 5.89 7.89%
30-Dec-99 6.85 7.49% 20 years
31-Dec-00 6.68 8.04%
31-Dec-01 6.43 8.74%
31-Dec-02 5.23 10.60%
31-Dec-03 6.38 9.92%
31-Dec-04 7.59 9.35% 15 years
30-Dec-05 9.69 8.15%
31-Dec-06 12.25 6.87%
31-Dec-07 12.41 7.34%
31-Dec-08 7.41 13.21%
31-Dec-09 10.24 10.98% 10 years
31-Dec-10 12.32 10.00%
31-Dec-11 13.45 10.09%
31-Dec-12 15.80 9.09%
31-Dec-13 19.56 6.82%
31-Dec-14 20.34 7.39% 5 years
31-Dec-15 21.42 7.91%
31-Dec-16 24.37 6.04%
29-Dec-17 26.70 4.33%
31-Dec-18 24.06 20.58% 1 year

As you can see, the value depends on the value of the unit at the start date, so the effects of the aftermath of the dot.com boom is evident, as is the effect of 2008. As I said before, the IRR since April 1987 is 9.96%.

Do not be surprised if you find variations as you go along.

TJH


Thanks for this; it seems then that the measure is only useful against itself as a comparitor over time. I am not sure that it adds much to the sum of knowledge but it is easy to set up and maintain and gives me the full house of time weighted returns, unitisation and IRR.

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Re: XIRR - What's the target?

#275363

Postby IanTHughes » January 5th, 2020, 7:33 pm

EssDeeAitch wrote:I have unitised my various pf's and also applied the XIRR calculations to them. The XIRR rates for Mr & Mrs SDH are 11% and 16.5% respectively which I feel are very acceptable indeed.

Measured over what time period?

The XIRR calculation for my HYP over nearly 8 years is 7.90% p.a. If you are talking about a value based on 2019 only, I am afraid I do not calculate an annual figure. I can tell you that my Accumulation Units have increased in value by just short of 25% which I believe would indicate a similar XIRR figure for the year.

EssDeeAitch wrote:My question is simple, what do other Fools think is a good enough XIRR?

The XIRR calculation gives an annual % rate of increase/decrease based on all cash flows in and out over the period of time between the first Cash In and the final Cash Out (Valuation). It therefore follows that a figures less than inflation over the same time period would not be anything to write home about and nor would a figure less than what could have been obtained on a cash deposit. I believe that my achieving 7.90% is well ahead of both those measurements, over the past 8 years, but that is all I can really tell.


Ian

Dod101
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Re: XIRR - What's the target?

#275371

Postby Dod101 » January 5th, 2020, 8:01 pm

Over my entire portfolio, which includes a HYPish component and some Growth shares my XIRR over the 7 year period from 1/1/13 is 8.6% per annum but so what? It is comfortably exceeding RPI.

To answer the original question, I want to exceed RPI at least but am really much more interested in the dividends derived. They have increased but at a slower pace.

Dod

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Re: XIRR - What's the target?

#275411

Postby 77ss » January 5th, 2020, 10:52 pm

EssDeeAitch wrote:.....
Thanks for this; it seems then that the measure is only useful against itself as a comparitor over time. I am not sure that it adds much to the sum of knowledge but it is easy to set up and maintain and gives me the full house of time weighted returns, unitisation and IRR.


I use XIRRs for comparisons within my holdings. Just one form of measurement, and the ease of setting it up has much to commend it.

To answer your original question, I regard 8% as satisfactory - remarkably close to the 7.9% achieved by IanTHughes!

Not meaningful, in my view, over short periods of time - it is just too variable.

My two tax-sheltered accounts (SIPP and ISA) straddle this figure with 9.39% over 5 years, and 6.59% over 14 years. Maybe I've learnt something from my ISA disasters!

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Re: XIRR - What's the target?

#275435

Postby EssDeeAitch » January 6th, 2020, 7:31 am

77ss wrote:
EssDeeAitch wrote:.....
Thanks for this; it seems then that the measure is only useful against itself as a comparitor over time. I am not sure that it adds much to the sum of knowledge but it is easy to set up and maintain and gives me the full house of time weighted returns, unitisation and IRR.


I use XIRRs for comparisons within my holdings. Just one form of measurement, and the ease of setting it up has much to commend it.

To answer your original question, I regard 8% as satisfactory - remarkably close to the 7.9% achieved by IanTHughes!

Not meaningful, in my view, over short periods of time - it is just too variable.

My two tax-sheltered accounts (SIPP and ISA) straddle this figure with 9.39% over 5 years, and 6.59% over 14 years. Maybe I've learnt something from my ISA disasters!


I have for a while measured XIRR against individual holdings but this is the first time I have done so on a portfolio basis and this has proved your words about short term uselessness. It is something I will continue to use if for no other reason than it is interesting to what moves, when and why.

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Re: XIRR - What's the target?

#275441

Postby Dod101 » January 6th, 2020, 7:51 am

EssDeeAitch wrote:I have for a while measured XIRR against individual holdings but this is the first time I have done so on a portfolio basis and this has proved your words about short term uselessness. It is something I will continue to use if for no other reason than it is interesting to what moves, when and why.


I do not regard it as a useless measure over the short term. After all it is giving your results fairly accurately over the given period. It is no more useless I would have thought than any other measure over a short term. With investing though I am interested in the long term trend and taking any measure over at least five years and preferably longer will give you that as it irons out the inevitable short term volatility.

If we could repeat the results for 2019 every year we might not quite reach the Warren Buffett record but we all be pretty good nevertheless.

Dod

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Re: XIRR - What's the target?

#275447

Postby EssDeeAitch » January 6th, 2020, 8:17 am

Dod101 wrote:
EssDeeAitch wrote:I have for a while measured XIRR against individual holdings but this is the first time I have done so on a portfolio basis and this has proved your words about short term uselessness. It is something I will continue to use if for no other reason than it is interesting to what moves, when and why.


I do not regard it as a useless measure over the short term. After all it is giving your results fairly accurately over the given period. It is no more useless I would have thought than any other measure over a short term. With investing though I am interested in the long term trend and taking any measure over at least five years and preferably longer will give you that as it irons out the inevitable short term volatility.

If we could repeat the results for 2019 every year we might not quite reach the Warren Buffett record but we all be pretty good nevertheless.

Dod


Point taken, and yes, if we could replicate 2019 every year, I would be a very happy person indeed.


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