The difference is downside risk.
Your CD, assuming you are in the US and the CD is purchased from a deposit bank, will be FDIC insured, your $10,000 is definitely coming back to you. Your stock portfolio has no such guarantee and can lose money. Your potential upside is theoretically correlated to the risk that some or all of your money may not be ...
A CD is guaranteed to pay its return on maturation. So if you need a certain amount of money at a specific time in the future, the CD is a more reliable way of getting it. The stock market might give you more money or less. More is obviously OK. Less is not if you're planning to pay basic expenses with it, e.g. food, rent, etc.
Growth and volatility are a matched set.
Growth is how well the investment will grow on average. In the long term, this is a sure thing.
Volatility is how much the value will jerk up and down in the short term.
Do you want both... Or neither? When are you going to use the money?
If it's IRA money you can't touch for 30 years, it really ought to be ...
This isn't an effect that works either for you or against you, it's just a notational coincidence or numerology-like observation.
A $10 absolute gain and a $10 absolute loss are even. The mistake here is to think there's any reason percent changes should match when you get back to even.
I grant you, people may psychologically connect a 50% loss with a 50% ...
A good measurement would be to compare to indexes. Basically a good way to measure yourself would be to ask "If I put my money somewhere else how much better or worse would I have done?"
Mutual funds and Hedge funds use the S&P 500 as a bench mark. Some funds actually wave their fee if they do not outperform the S&P or only take a fee on the portion ...
Unfortunately, yes, I think I would be disappointed.
For an investment that grows from $46,000 to $58,000 in 10 years, the Compound Annual Growth Rate (CAGR) is 2.35%.
The CAGR of the S&P 500 from January 1, 2006 to December 31, 2015, including dividends, was 7.29%. If you had invested in an S&P 500 index fund, your $46,000 investment would be ...
Not sure why CAGR is a problem for both directions.
I used to be a physicist, and, when I taught classes in graduate school, students always wanted to use the terms "accelerate" and "decelerate" to describe "speeding up" and "slowing down". But acceleration is just a vector with magnitude and direction. There's nothing special about slowing down that it ...
The Rule of 72 is a rough guide for calculating how long it would take to double your investment through compound interest, given a fixed yearly rate of return.
It means that the time taken (in years) to double your investment value is approximately equal to:
72 / return of investment (%) per year.
Example: Assuming you have invested an amount, X, in ...
First of all, the annual returns are an average, there are probably some years where their return was several thousand percent, this can make a decade of 2% a year become an average of 20% .
Second of all, accredited investors are allowed to do many things that the majority of the population cannot do. Although this is mostly tied to net worth, less than 3%...
Yahoo's primary business isn't providing mutual fund performance data. They aim to be convenient, but often leave something to be desired in terms of completeness.
Try Morningstar instead. Their mission is investment research.
Here's a link to Morningstar's data for the fund you specified. If you scroll down, you'll see:
The main problem is that indexes like the FTSE only show growth in share price. The FTSE 100 is, by definition large companies, and most of those would be regarded as dividend rather than growth stocks.
You need to look at a total return index to get a more accurate picture because if you reinvested dividends you would see an additional ~4% compound growth ...
Do you recall where you read that 25% is considered very good? I graduated college in 1984 so that's when my own 'investing life' really began. Of the 29 years, 9 of them showed 25% to be not quite so good.
My experience is in economics, so it may differ from an accounting or personal finance perspective somewhat; that being said, I find it perfectly acceptable to use a term like CAGR when the rate is positive or negative. Economists talk about negative growth rates all the time, and it's universally assumed that growth rates can be positive or negative.1 ...
This can be answered by looking at the fine print for any prospectus for any stock, bond or mutual fund. It says: "Past performance is not an indicator of future performance.".
A mutual fund is a portfolio of common stocks, managed by somebody for a fee. There are many factors that can drive performance of a fund up or down. Here are a few:
The fund may ...
Assuming you are putting everything into each trade, then what you'd want to do is multiply your returns together with a 1 added to normalize things.
2.00%, 2.94%, -1.90%, -1.94%, -2.97%, -1.02%, 2.06%, 1.01% are the individual returns.
(1.02)(1.0294)(.981)(.9806)(.9703)(.9898)(1.0206)(1.0101) = 1.00004293936 which rounds off to 1 which is a 0% total ...
Buffet is able to do many things the average investor cannot do.
For example: During the 2008 market crash Buffet purchased 5 Billion on Citi preferred stock (as somewhat of a bail out) that pays 5% Dividend. Then he also received warrants to buy another 700 million shares over the next 10 years where he can buy shares at 5% discount. So right off the bat ...
The term 'interest' tends to be used loosely when discussing valuation of stocks. Especially when referring to IRAs which are generally the purvey of common-folk who aren't in the finance industry. Often it is used colloquially to include:
The increase in the value of the stock.
Any dividends paid by the stock.
Using this definition (which is what I'm ...
It depends which 3 years (and which 15). If you had bought the S&P500 index fund in the 2004-2005 time range, your 3 year returns would be small, nothing, or even negative, depending on how exactly you timed it, whereas waiting 15 year (until about now) would have more than doubled (nearly tripled, again depending on exact timing) your investment. See ...
25% return as what you'd want to do is invert the 80% that is left to get the figure. Thus, just compute .8^-1=1.25 or 25%.
Now, to walk this through in a bit more detail for those that found the above to be a bit mystical:
Consider starting with $100 and we want to end with $100.
Now, the account goes down 20% which means that we are at $80 as 100*(1-....
In addition to the answer from CQM, let me answer your 'am I missing anything?' question. Then I'll talk about how your approach of simplifying this is making it both harder and easier for you. Last I'll show what my model for this would look like, but if you aren't capable of stacking this up yourself, then you REALLY shouldn't be borrowing 10,000 to try to ...
The relationship is not linear, and depends on a lot of factors. The term you're looking for is efficient frontier, the optimal rate of return for a given level of risk.
The goal is to be on the efficient frontier, meaning that for the given level of risk, you're receiving the greatest possible rate of return (reward).
Doesn't that assume I will make 9% on three additional trades?
No (well, sort of, but not really). "annualized" doesn't mean "what will my return be in one year". It means "what's the equivalent annual return of this non-annual investment". So yes, to get 36% over one year you're assuming that the return is replicable (meaning that IF you earned 9% each ...
Ray - Algebra I tells us that (X+Y)(X-Y)= X^2 - Y^2 so a gain and loss of 10% is a net loss of 1%, 20%, -4%, and so on. I'm not clear on how you want to benefit from this aside from avoiding the losses.
Other answers have pointed out the mathematics behind this "notion", as you put it – and I hope the explanations were helpful – while failing to answer with a potential strategy (save for duffbeer703). Here it is:
The way you take advantage of swings in the market (to generalize) is to:
invest more cash in the market before the up moves, and
Because the IRR doesn't depend on discount rate.
Instead, the IRR is a discount rate.
The IRR is the discount rate that makes the NPV=0.
Put another way, the IRR is the discount rate that causes projects to break even.
Raising or lowering the discount rate in a project does not affect the rate that would have caused it to break even.
Since the deposits into the investment fund are irregular in their timing, there isn't really any single formula that will give the information you want. Your only hope is a spreadsheet.
Start by guessing at the rate of return. Yes, GUESS. Assume that the rate is the annual rate, compounded monthly.
So, you throw in the $1200; it grows, compounded, for ...
A 401K (pre-tax or Roth) account or an IRA (Deductible or Roth) account is a retirement account. Which means you delay paying taxes now on your deposits, or you avoid paying taxes on your earnings later.
But a retirement account doesn't perform any different than any other account year-to-year. Being a retirement account doesn't dictate a type of ...
Another factor to consider, beyond the fact that growth and volatility go together, is that the times when many people will need to liquidate their investments will correlate with the times that many other people need to liquidate their investments, and such correlation will push down the immediate value of those investments.
While certificates of deposit ...
The first formula has an error. If you want to find the total return on your initial investment then you should be dividing by the initial investment, not by the total number of shares bought. It should be:
return = 100% * (total sold - total bought) / total initially bought
100% * (60,000 - 30,000) / 10,000 = 300%
The second formula is essentially the ...