IRR is the discount rate at which the net present value (NPV) of all cash flows equals zero. Unlike CAGR, IRR accounts for the timing and size of each cash flow (deposits, withdrawals, dividends).
Solve for r: 0 = Σ CFt / (1+r)^t where CFt = cash flow at time t
If you invested $5,000 in January, added $3,000 in June, and the portfolio is worth $9,000 in December, the IRR accounts for the fact that the $3,000 was invested for only 6 months.
IRR can produce multiple valid answers when cash flows change direction more than once (investments followed by withdrawals followed by more investments). In these cases, IRR is mathematically ambiguous.
IRR overstates performance when you add money after gains. If your portfolio gains 50% and you then double your investment, IRR weights the large new deposit heavily — showing a return closer to the post-deposit period than your actual experience.
IRR and CAGR give identical results only when there are no intermediate cash flows. The moment you add or withdraw money, IRR diverges from CAGR — and the difference can be 5-10+ percentage points.
AllInvestView calculates IRR (Money-Weighted Return) on your portfolio dashboard, accounting for all deposits and withdrawals. Compare it with Time-Weighted Return in our returns guide.