- The first is a range of cash flows into or out of the investment. Invested amounts are positive, but withdrawals are negative.
- The second is a range of dates corresponding to the investments or withdrawals,
- The third is a guess value for the CAGR (XIRR uses Newton-Raphson iteration, so it needs a guess value tostart the iteration).
- CAGR hides volatility by assuming that investments grow at a constant rate. Volatility is an important factor in managing investment risk and can’t be ignored.
- It’s based on historical data, and can’t be relied on as the only method of predicting future value.
- CAGR can be manipulated by picking the time period over which it is measured. An unscrupulous fund manager can, for example, choose a start date with an unusually low investment value.
|Become a Smart Investor in 2 Minutes!|
|Sign Up for FREE Articles providing Insight to Equity Market|
|Saral Gyan Annual Subscription Services|