 January 9, 2023 # How to Compute Stock Portfolio's IRR?

The IRR is a metric that calculates the annualized return of an investment, taking into account the time value of money. Computing the Internal Rate of Return (IRR) for a stock portfolio is a useful way to measure the performance of your investments. The IRR is a metric that calculates the annualized return of an investment, taking into account the time value of money. In other words, it helps you understand how much your portfolio has grown or declined over a specific period of time.

To calculate the IRR of your stock portfolio, you will need to follow these steps:

1. Gather all of the necessary information: You will need to have a complete list of all the stocks in your portfolio, as well as their purchase and sale prices and the dates on which they were bought and sold.
2. Calculate the cash flows: For each stock in your portfolio, you will need to calculate the cash flows associated with that investment. To do this, subtract the purchase price of the stock from the sale price, and divide the result by the purchase price. This will give you the percentage return on the investment.
3. Determine the time period: Next, you will need to determine the time period over which your portfolio was held. This will typically be the number of days between the purchase date and the sale date of each stock.
4. Use a financial calculator: There are many online financial calculators that can help you compute the IRR of your stock portfolio. Simply enter the cash flows and time periods for each stock, and the calculator will do the rest.
5. Interpret the results: The IRR is typically expressed as a percentage, so a result of 10% means that your portfolio generated a 10% return over the specified time period. Keep in mind that the IRR is a relative measure of performance, so it is important to compare your portfolio's IRR to a benchmark, such as the S&P 500, to see how it stacks up.

Calculating the IRR of your stock portfolio can be a useful way to track the performance of your investments and make informed decisions about your financial future. By following these steps, you can easily compute your portfolio's IRR and get a better understanding of how your investments are doing.