#321137

Postby **Bagger46** » June 24th, 2020, 4:55 pm

In general, since both acc units and portfolio XIRR are attempting to get you a view of your overall Total Return you would expect the numbers to converge as portfolios mature.

As I have posted elsewhere we run a portfolio system on the cloud(originally developed by my late father in law( OZYU), I did make a small contribution and run the thing, and train users, these days), and currently I have read access 35 portfolios belonging to family and close friends, unitised identically for acc and inc units, plus portfolio XIRR. The oldest is from 1982(my mother in law's taxed portfolio, although she was an investor way before that). For every portfolio older than 7 years old, the convergence is very good indeed. But please see the caveats below.

We always start acc units at £1, because it is then easy to plot acc unit progress on the same graph as (1+XIRR)^years. (or as said above you could plot the acc unit compound return directly vs XIRR over the same time period).

Caveat, Don't expect convergence in the following cases.

Portfolios less than one year old comparison meaningless unless you 'correct' XIRR for less than full year timespan, even then poor convergence usually.

Young portfolios just a few years old, mostly poorish convergence due to the fact that cash movements can be a large relative proportion of overall portfolio value in these early years.

Any portfolio, of any age, with very large (violent) cash movements in relation to portfolio value. ie Ernie smiled on you and you fed £1m into a £250k portfolio. This would send XIRR in a spin for a while, but in a year or so convergence would resume.

Example: Our own three portfolios, two PEP/ISAs since beginning of 1987 and our taxed portfolio since April 1993 all show very close convergence, such that the data plots of Acc units and (1+XIRR)^duration are basically undistinguishable. For example, at last night's close, in our taxed portfolio Acc units have compounded at 12.47% since inception, portfolio XIRR is 12.48%. If you don't get this convergence with no violent cash flows, simple, your unitisation is faulty.

Bagger