What Is IRR and Why Your Broker Won't Show It to You

Two questions, two different answers

When you ask "how is my portfolio doing?", you're actually asking two different questions:

1. How well did the portfolio's assets perform? (How good were my investment selections?)
2. How well did my money do? (Given when I put money in and took it out, what return did I actually achieve?)

These have different answers and require different calculations. Brokers typically show you the answer to question one. Investors usually care more about question two.

Time-weighted return: the broker's number

Time-weighted return (TWR) measures how a portfolio of assets performed, independent of the timing and size of your cash flows. It strips out the effect of investor behaviour — useful for evaluating a fund manager whose strategy shouldn't be penalised by when clients chose to invest.

But you're not evaluating a fund manager. You're evaluating your own investment outcomes. For that purpose, TWR is the wrong tool.

Money-weighted return: your actual experience

Internal Rate of Return (IRR) — or money-weighted return — measures the actual return you achieved given the specific timing and amounts of your cash flows. It's the discount rate that makes the present value of all your contributions equal to the present value of all your withdrawals plus your current portfolio value.

In plain terms: if you put in £10,000 two years ago and another £10,000 six months ago, and it's now worth £23,000, your IRR tells you what annualised return explains that outcome given the exact timing of those contributions.

The difference matters enormously when cash flows are large relative to the portfolio, or when they happen at significant market turning points.

Why brokers don't show IRR

There are a few reasons, none especially satisfying. IRR is computationally harder. Showing it creates comparison problems when it differs from published fund returns. And for very short periods, annualised IRR figures can be enormous in either direction and hard to interpret.

For private assets — where the calculation really matters — most brokers aren't involved at all. Private equity, venture capital, and direct property investment don't sit in brokerage accounts.

Why IRR matters most for private assets

The standard return metric for private equity funds is the IRR. When a VC fund says it returned 32% net IRR over its life, that's what they mean — the annualised rate that explains the cash flows from capital calls to distributions to the final realisation.

Without IRR, you have no principled way to compare your private equity stake (irregular cash flows, 7-year horizon) against your stock portfolio (daily prices, liquid). A private investment might show a "4× multiple" — but if it took 12 years, the IRR is ~13%. If it took 4 years, it's ~41%. The multiple alone tells you almost nothing.

YTD, 1-year, 3-year: what these actually mean

A 3-year return figure tells you what happened to the portfolio's assets over 3 years. It doesn't tell you when your money was in the portfolio. If you made your largest contribution 18 months ago, the "3-year return" is largely irrelevant to your personal experience.

The only figure that captures your personal investment outcome is one that accounts for your specific cash flows. That's IRR.