Posted by: c864916 April 12, 2017
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Hi micky_mouse,
I did some simple math and found out that a 9% interest rate (compounded annually) doesn't beat the general US stock market (S&P 500). This doesn't even consider the fact that a bank will meet the 9% interest rate year over year.
Forgive me for my mathematical errors for I am not a Maths major. :)
TLDR; version:
Just read the text/numbers highlighted either in bold or red.
April 2012
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USD/NPR: $1 = Rs 82.27
Initial Deposit
NPR: Rs 100000
USD: $1215
April 2017 (5 years)
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USD/NPR: $1 = Rs 103.50
1) With a 6% Interest Rate (Compounded annually)
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Interest= Rs 33822
Total Amount:
NPR: Rs 133822
USD: $1292
Average Yearly Return:
NPR: [(133822-100000)/100000 * 100%] / 5 = 6.76%
USD: [(1292-1215)/1215 * 100%] / 5 = 1.26%
2) With a 9% Interest Rate (Compounded annually)
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Interest= Rs 53862
Total Amount:
NPR: Rs 153862
USD: $1486
Average Yearly Return:
NPR: [(153862-100000)/100000 * 100%] / 5 = 10.76%
USD: [(1486-1215)/1215 * 100%] / 5 = 4.46%
3) S&P 500 (Index based on 500 large companies)
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Let's take Vanguard 500 Index Fund ETF(VOO)
April 2012
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USD/NPR: $1 = Rs 82.27
NPR: Rs 100000
USD: $1215
VOO: $125.48 per stock/ETF
Number of VOO stocks/ETFs: 9.68
April 2017
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USD/NPR: $1 = Rs 103.50
Value of 9.68 VOO Stocks/ETFs
VOO: $215.91 per stock/ETF
USD: $2090
NPR: Rs 216315
Average Yearly Return:
NPR: [(216315-100000)/100000 * 100%] / 5 = 23.2%
USD: [(2090-1215)/1215 * 100%] / 5 = 14.4%
Note:
- Notice the difference between NPR return VS US return. There's where inflation creeps and the purchasing power of currency falls.
- The US also had inflation but at a smaller rate of 1.32% on average during that 5 year period
- There are expenses on trading VOO stock/ETF.
- There are dividends paid on VOO stock/ETF.
Last edited: 12-Apr-17 07:07 AM
Last edited: 12-Apr-17 12:05 PM