XIRR vs CAGR: Which Return Number Should You Actually Trust?
XIRR vs CAGR: Which Return Number Should You Actually Trust? "I invested in two mutual funds. One shows 14% CAGR. The other shows 12% XIRR. Which one actually performed better?" I get some version of this question almost every week. Sometimes it comes from a young software engineer checking his SIP app at midnight. Sometimes it comes from a retired schoolteacher comparing her fixed deposit to her mutual fund statement. The confusion is the same either way. Here's the uncomfortable truth: most investors are comparing two different things and assuming they're the same thing. It's a bit like comparing your friend's marathon finish time with your own 100-metre sprint time, and then feeling bad because his number is bigger. The numbers aren't wrong. You're just reading them the wrong way. That single mix-up — CAGR vs XIRR — causes more unnecessary stress, wrong fund-switching decisions, and misplaced disappointment than almost any other topic I discuss w...