29
votes
Are Certificates of Deposit worth it compared to investing in the stock market?
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 ...
- 48.9k
23
votes
Why isn't there a universal investment standard/benchmark?
Here are some (non-exhaustive) reason why different benchmarks are used, or why a constant benchmark is not optimal:
Returns are different in different time periods. In your golf analogy, par is ...
- 129k
22
votes
Accepted
What is the real return of a portfolio? Markowitz vs "real" return
Analysis in the Markowitz model is intended to be done over a single investment period (source). Here you've stretched it out to 5 annual periods, so you're outside the bounds of the model.
The ...
- 740
19
votes
Are Certificates of Deposit worth it compared to investing in the stock market?
Reliability
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 ...
- 21k
19
votes
Are Certificates of Deposit worth it compared to investing in the stock market?
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 ...
15
votes
Should I be disappointed with my investment returns?
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 ...
- 115k
14
votes
Accepted
Why do people claim that Stock Markets are broadly exponential in the long term?
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 ...
- 1,930
13
votes
Why isn't there a universal investment standard/benchmark?
"Why is it easy to set a standardized scoring metric for golf, and not for investments?"
Because golf is a sport standardized by various sporting bodies, to the extent that those bodies ...
- 41.5k
12
votes
Does investing in the S&P 500 for 3 years yield better yearly returns than investing for 15 years?
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 ...
- 9,506
10
votes
Accepted
Shouldn't a Roth IRA accumulate more than 1 cent of interest per month?
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. ...
- 1,428
10
votes
Does investing in the S&P 500 for 3 years yield better yearly returns than investing for 15 years?
"the average return for 3, 5, 10, 15 years is 9%, 8%, 13% and 7.6% respectively"
I suspect this really means that the returns using the S&P average over the previous 3, 5, 10, 15 years is … . ...
- 1,556
9
votes
Accepted
Is this how to calculate annualized return?
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 ...
- 129k
8
votes
Accepted
401k compound interest vs other compound interest
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 ...
- 133k
8
votes
Accepted
Are Certificates of Deposit worth it compared to investing in the stock market?
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 ...
- 818
8
votes
Calculating returns on a stock: different ways?
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 ...
- 6,839
8
votes
When investing, is the risk/reward tradeoff linear?
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 ...
- 943
8
votes
Shouldn't a Roth IRA accumulate more than 1 cent of interest per month?
There are a couple of misconceptions I think are present here:
Firstly, when people say "interest", usually that implies a lower-risk investment, like a government bond or a money market fund. Some ...
- 41.5k
8
votes
Accepted
What is the difference between Rate of Return and Return on Investment?
ROI (Return on Investment) is a simple percentage.
https://investinganswers.com/financial-dictionary/technical-analysis/return-investment-roi-1100
The return on investment formula is:
ROI = (Net ...
- 50.5k
8
votes
Accepted
Two investments with same % returns but different dollar returns
This is a basic arithmetic. If investment A and investment B both provide a 20% return and investment A provides 4 times the dollar return than B then one must invest 4 times as much in A.
Given ...
- 75.7k
7
votes
Accepted
Why adjust for inflation annually, as opposed to realising it after the holding period?
I would use neither method. Taking a short example first, with just three compounding periods, with interest rate 10%. The start value y0 is 1.
y0 = 1;
y1 = (1 + 0.1) y0;
y2 = (1 + 0.1) y1;
y3 = (1 +...
- 9,467
7
votes
Accepted
Real Estate: Why does the maximum compound gain happen somewhere in the middle of the mortgage term?
What you are not considering here is the financial leveraging of the equity-based gain. Leveraging refers to the fact that using loaned money to invest, increases the punch of your equity dollars. As ...
- 41.5k
6
votes
Accepted
Accepting high volatility for high long-term returns
This is basically what financial advisers have been saying for years...that you should invest in higher risk securities when you are young and lower risk securities when you get older.
However, ...
- 15k
6
votes
"Rule of 72" For Higher Multiples?
For 3X, it's about 114, and for 4X, 144, which naturally, is twice 72.
These are close, back of napkin, results. With smart phone apps offering scientific calculators, you should get comfortable ...
6
votes
Accepted
How are average annual returns calculated on an index fund?
The reported returns include the growth of the fund, not just the dividend yield.
These are approximate numbers, but suppose the fund opened at $13.16 per share on Jan 1, 2016, and by Dec 31, 2016 it ...
- 646
6
votes
Accepted
Can money work that hard for you?
TL;DR - yes, any assumption north of 10% is a too good to be true scenario.
The US stock market, as measured by the S&P, has returned 10.51% CAGR. But, there was a standard deviation of 19.61% ...
6
votes
Accepted
Would high interest rates offset the issue of keeping money in a weak currency?
So would it be better for me to keep the money in South Africa or would the interest gains be wiped out by the fact the Rand gets weaker by the year, and therefore would be better for me to transfer ...
- 57k
6
votes
Accepted
How to calculate quarterly returns from monthly?
The calculation is product.
Given monthly returns X%, Y%, Z%, quarterly return Q% is calculated as:
Q% = ((1 + X%/100) * (1 + Y%/100) * (1 + Z%/100) - 1) * 100%
Using the numbers from the question:
...
- 3,118
6
votes
Accepted
0% rate of return + inflation differs from inflation alone
If inflation was 100%, would you expect your money to lose 100% of its value?
Say you have $1000 cash. Widgets cost $1. You can currently buy 1000 widgets with your cash.
After 5% inflation, widgets ...
- 740
6
votes
How do you factor in inflation when calculating internal rate of return on an investment?
However, this value doesn't make any sense in the context of non-zero inflation.
I disagree. The purpose of using IRR (which is what the XIRR function calculates) it to be able to compare investments....
- 129k
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