(Since there's such a spread of expertise here :) ) Does anyone know what the formula/procedure is to determine from the following:
1) Initial investment 2) Regular (monthly) deposit 3) Time interval 4) Current value 5) Withdrawal dates an amountswhat the effective interest rate of an investment has been ?
My reason for asking is to compare the return I am getting from my "high risk" S&S ISA, against other forms of investment over the past 14 years.
Thanks ! - it's all about names ... I had no idea it was called
*Internal* rate of return.Now to turn it into a spreadsheet ...
In a spreadsheet set a cell to be the interest rate (IRR) (you don't know it yet but that doesn't matter so just guess 5%).
Then use that IRR cell to discount each payment separately to the initial investment date. If the IRR you have used is correct all payments and the initial investment (suitably signed) will sum to zero .
Now your guess won't be right and the sum won't be zero so use the spread sheet's "solver" tool to find the IRR that does make the sum of all discounted cashflows zero.
Sorry in excel you only need "goal seek". In OpenOffice it is solver.
All decent financial calculators will make this calculation for you.
I have used the same HP12C calculator for over 30 years. If you just want to use an emulator, there is one here:
If the portfolio for that S&S ISA really is high risk, I'd hazard a guess that it'll have returned 1000% (one thousand percent - 5k to
50k not unreasonable over 14 years) or more. Assuming those widthdrawals have not been large. ie knocked any other investment into a cocked hat.
why would you assume that. The FTSE for instance is at about the same level it was 15 years ago?
The FSTE is relatively "safe" and doesn't have active fund management. A decent fund manger of a "high risk" portfolio ought to average 15% return/year (or more over) 14 years but that is an average, individual years could be span a huge range, -100% to
+100%...
I've not seen much evidence that the markets are particularity risk averse. I've not looked recently but in the past when I have looked there was no evidence that managed funds outperformed indices on average, in fact they tended to under perform due to management fees.
A lot of funds that have done well in the past will advertise this past performance and the ones that did not will hide it which can create a misleading impression. Unfortunately past performance is not a good indicator of future performance.
So what evidence do you have for your beliefs of a huge risk premium?
There are built in financial functions in Libre / Open Office and Excel
HomeOwnersHub website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.