Quantifying Returns: CAGR and XIRR
How to do returns in excel or spreadsheet? Read along to find out
In investment parlance, returns is a big deal. It probably gets more attention than almost any other metric or ratio out there, and occupies the largest mindshare among most investors.
So far, we've carefully avoided this topic to do it justice because returns also happen to be commonly misunderstood and are often erroneously focused upon.
To begin with, returns are not just some numbers on a screen and the goal is not to have as high returns as possible. It's instructive that as investors, we develop a good visual and mental model of what these numbers / metrics mean and interpret it in the right context.
This chapter's child pages are meant to enhance our knowledge, so we can have higher-level discussions about returns. At the same time, we aim to empower ourselves so we can compute these values independently on our own using spreadsheets rather than relying on external online tools. This would help us make better financial decisions.