Definition
Modified IRR adjusts for reinvestment rate assumptions, making projections more realistic than traditional IRR. It's especially useful for long-term investments.
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MIRR adjusts for reinvestment rate assumptions making more realistic than traditional IRR. Particularly important for long-holding-period investments. Assumes distributions reinvested at reasonable rates (4-6%) rather than IRR rate. More conservative and realistic than IRR. Professional analysts use MIRR for accurate comparison. Less marketing-friendly than IRR so less commonly promoted. Better predictor of actual investor returns. Requires more calculation complexity. Growing adoption in sophisticated analysis.
Pro Tip
Request both IRR and MIRR metrics. MIRR is more realistic.
Example
Modified IRR of 10.5% was more realistic than projected 12% traditional IRR.