Why total ROI is almost always the wrong number to lead with
A 60% total ROI over 5 years (≈ 9.9% annualized) is meaningfully different from a 60% total ROI over 18 months (≈ 40% annualized). Same headline number, completely different deal. IRR fixes this. The "net of benchmark" number is the one that tells you whether it was worth the risk and effort vs. doing nothing.
FAQ
Is the IRR before or after tax?
Before. If you hold this in a taxable account, your realized IRR will be reduced by capital-gains tax on the appreciation and by ordinary income tax on the interim cash flows. For a quick after-tax estimate, reduce the IRR by your blended tax rate.
What if my cash flows are uneven — big in year 2, zero in year 1?
This calculator assumes a flat interim cash flow. For uneven flows, replace the single field with a year-by-year array — that's why the timeline panel shows the structure. For complex cases, the IRR formula in the methodology section is what the underlying code uses, and it can be extended to per-year inputs.
How is "net of benchmark" different from Jensen's alpha?
Jensen's alpha is risk-adjusted — it subtracts beta × market return. This calculator does a flat subtraction, which is the more intuitive version most people want when comparing a private investment to a passive index fund. If you want risk-adjusted, you need beta, which is a different calculation.
Methodology
Total ROI = (final − initial + interim_total) / initial. Annualized IRR is the rate r that satisfies the NPV equation: 0 = −initial + Σ CFt / (1+r)t + final / (1+r)years, solved by Newton-Raphson iteration. Net of benchmark = annualized IRR − benchmark rate, expressed in percentage points. Source: standard corporate finance textbook formulation.