The IRR (internal rate of return) is your money-weighted return per year. It takes into account the exact dates on which you made buys and sells.
The calculation includes all income from your investments, i.e. price gains, realized gains, and dividends and distributions. Taxes and fees are also included in the IRR. Cash holdings don't count: their balance and the interest on cash holdings don't go into the IRR.

You can think of the IRR like the interest rate on an instant-access savings account. Every time you invest money, you pay that amount into the account instead. Every time you sell something, you withdraw the money. The IRR is then the interest rate of this savings account: the rate you need to end up at the current value of your portfolio with the same deposits and withdrawals.

We show you the IRR both for your entire portfolio in the dashboard and for your individual holdings.

Let's say you buy two Apple shares at €1,000 each (fictional number) at the start of 2022. In the middle of the year, you buy two more shares, again at €1,000 each. At the end of 2022, the price rises and one share is worth €2,000. For the unrealized gain, it doesn't matter when the activities took place. In 2022, you spent a total of 2x€1,000+2x€1,000=€4,000. At the end, you have a value of €8,000. Your unrealized gain is €4,000, your unrealized return is +100%.

For the IRR, however, it matters when the buys were made. The first two shares gained 100% in one year, the last two shares gained 100% in half a year. The IRR respects these different returns and calculates an “average” return over the year.

So it answers the question: At what return do I need to invest €2,000 for 12 months and €2,000 for 6 months to end up with €8,000? The answer is around 144% per year: at this rate, €2,000 grows to about €4,877 in 12 months and €2,000 grows to about €3,123 in 6 months. Together, that's €8,000.

Unlike the unrealized return, the IRR takes into account when you invest money and how long it stays invested. Mathematically, we use the Newton-Raphson method for this. By the way, strictly speaking we don't use the plain “IRR” but the “XIRR”, which can handle irregular intervals.

Parqet only calculates the IRR if the selected period is longer than 90 days. For shorter periods, the IRR shows 0%, even if your portfolio is many years old. Example: If you select “30 days”, or “YTD” in February, the IRR shows 0%.

For a single holding, it also matters how long you've held it within the selected period. If you bought a stock only 60 days ago, its IRR shows 0%, even if you selected “1 year”.

We've described the difference in detail in this article.