Calculating Performance

[bovie]

Sure, you can track individual assets, but for what purpose? It depends on the question that you're hoping to answer with XIRR.

In most years, stocks increase in value, so lump-sum will outperform DCA. For one year, let's assume that SCV and S&P500 have identical annual returns. If I buy SCV lump-sum in January and S&P500 bimonthly over 12 months, SCV might seem to have outperformed with XIRR for one year. But SCV IRL did not. If you tilt towards SCV thinking it would outperform large-cap stocks, then XIRR is going to mislead you unless the parameters are the same.

IMO, XIRR's most useful for ensuring that your portfolio's annualized return doesn't lag behind your expected annual return in your financial plan assumptions. It doesn't matter how your individual assets perform as long as your portfolio returns fine. If it doesn't then you have to reevaluate your asset allocation, asset selection, and investing strategy. For the asset allocation and selection, you would not use XIRR to reevaluate. For investing strategy, you would (e.g., do I tend to let cash sit idle for too long?).

Clearly you've never invested in a private real estate fund, or syndication, or had any rentals, or invested in literally anything other than a huge passive index fund. One day, if you do, the "purpose" or tracking returns for individual assets will become crystal clear.

Also, it's just not that hard. As explained, you can do this at the asset level and then calculate your total portfolio return--which takes literally the exact same amount of time if you know how to use a spreadsheet--but you can't go the other way. Think on that for a bit. We have computers to make things like this easy. You're pretending that we don't, or that it's not.

I'm not sure where you're getting this comparison between S&P and SCV. You're out in left field on that, that's not what I'm talking about. But you don't use XIRR, or any other actively updated metric, to re-evaluate a tilt. That's not an annual decision.

I think it's very illuminating that you say the only thing that matters is the return of your total portfolio, and then in the same breath say "it doesn't matter how your individual assets perform." Pray tell, where does this portfolio return come from if not individual assets?

I've served my purpose here to correct your information for OP and have no interest in going back and forth further with you about how XIRR works or how it is used.

Suffice it to say that considering some of the things you've said, if you read up on it a little bit further I think you'll eventually get a stronger handle on it beyond the simple "it tells me how my whole portfolio does," and that if you were to ask a room full of seasoned investors whether they want to know with accuracy how their individual assets and holdings have performed for them with their money invested, or just the portfolio overall, you'd find yourself as the only one with your hand raised for the latter.

[FrancisBayes]

Thanks for your thoughts, especially on the private real estate. I’ll make changes to the draft of my column and double-check with the OG White Coat Investor before it’s published.

[Eluna]

So to track assets class and overall portfolio performance my understanding now is to simply maintain an XIRR table of any in/outflow across all accounts for total performance and then separate XIRR tables with in/out flow for each asset class? That seems straight forward enough and really not hard to implement, just plug in date and amount.

Really appreciate the help as someone slowly working on getting a financial plan established as we will be done with residency this summer.

[bovie]

So to track assets class and overall portfolio performance my understanding now is to simply maintain an XIRR table of any in/outflow across all accounts for total performance and then separate XIRR tables with in/out flow for each asset class? That seems straight forward enough and really not hard to implement, just plug in date and amount.

Really appreciate the help as someone slowly working on getting a financial plan established as we will be done with residency this summer.

You can do it all in a single table. But yes, once you have the concept and understand what the function is doing, it is really quite straightforward.

A simple example:

Column A: cash flow dates
Column B: cash flows for VTSAX
Column C: cash flows for VFIAX
Column D: cash flows for VBTLX
Column E: cash flows for VMFXX
Column F: sum of cash flows for columns B-E

Then the bottom row for each of those columns should be the current date (A), current value of the holding (B-E), and current sum of all holdings (F).

Important: the current value of the holdings in the final row should be expressed as a negative number/outflow, assuming you use positive numbers for inflows.

Then just add another row to the bottom and run the XIRR function for all columns.

This will give you annualized returns for each of the individual holdings as well as the portfolio overall.

[bovie]

If you're more visual, it's as simple as this little example.

Once you get the hang of it, you can fine-tune, sub-classify, create annual splits, track annual flows, etc., to get as much data out of it as you like.