I'm clueless - do my calculations make sense?

[Kaminoge]

I understand very little about investing options but I'm trying to learn.

Apart from hanging around on here trying to gather pearls of wisdom I figured I should also work out exactly what it is I do have. Most of my investments are in property and I'm fine with understanding those - it's everything else I'm confused by.

I'm starting with a managed fund that I've had for some time. Some time turns out to be almost 15 years... time flies! Anyway I chose it 15 years ago because they were having some special offer where they let you join with only $1000. I joined, have been putting a little money in monthly ever since then and honestly not really ever considered whether it was a good idea or not. I guess it was definitely better than spending the money on shoes or something!

So today I went back over 15 years of statements (online) and put all the numbers into a spreadsheet. At the end this is what I came up with.

Total amount I've put in $19,900
Total amount of Distributions that have been paid in $35,667.84
Total amount of Fees/Charges deducted $110.09
Total Account value $37,863.84

I have no idea about the fees and charges. For years and years there was nothing listed in that column and then numbers started appearing the last couple of years. Obviously I was paying money all along (and obviously they're going to have taken a lot more than $110.09 off me over almost 15 years) but those are the numbers that are listed on statements. I assume some change took place in the way they show things.

Anyway my question is I want to know what my average return has been over the past 14.75 years so I did this calculation.

(37863.84-19900)/(19900*14.75)= Approx 0.0612

Does it make sense to calculate like that? So can I say that this account has earned me an average of 6%? That's quite different to the numbers they quote. They say 8.66% over the last 10 years and 12.55% over the last 5 years.

I'm pretty much just trying to understand where the numbers come from and whether or not I should take all my money out of this and put it in either my mortgages (which are at 5.2% interest) or in some other kind of investment vehicle.

The money is in Australia and all the above amounts are in $AUD.

Thanks for any tips on helping me understand what's going on.

[MDM]

See http://en.wikipedia.org/wiki/Compound_interest for more details. 

In brief, and oversimplifying, (37863.74/19900)^(1/14.75) - 1 = 4.46%.
From the wiki article: "The above calculates the compound interest rate achieved if an initial investment of PV returns a value of FV after n accrual periods."

That is oversimplifying because, for example, the 19900 was not all put in 14.75 years ago - you note "putting a little money in monthly ever since then".

We can wonder about the $110.09 - but what about the $35,667.84?  What does "paid in" mean?  Have you ever removed money from this account?

[Kaminoge]

Thanks for taking the time to reply.

I should have said I was doing a simple interest calculation on purpose. I couldn't think of any way that made sense to use compound interest (because of the adding in). And I thought what I was trying to get was an average rate of return. So in my head it was sort of like calculating average speed - you ignore all the details in between and just look at where you ended up and how long it took to get there. I actually like numbers (I'm a maths teacher!) it's just in this case I don't really know what is a reasonable thing to try and calculate to decide if this account is any good or not. I can see why my calculation doesn't particularly make sense either, again based on the idea that most of the money wasn't there most of the time.

I've never received money from this account. Every 3 months there's a distribution (I don't actually know what that means, I'm just reading off the statement) and I chose when I opened it to have that just put straight into the account. The amounts vary wildly. Once it was over $2000 but some months it's more like $40.

One other way to look at it is that I've put approximately $20,000 in (and I didn't even notice it go, the joys of automatic deductions over a long period of time!) and now it's worth just under $40,000. So I've roughly doubled my money in 15 years. Does that tell me anything?

[nereo]

One other way to look at it is that I've put approximately $20,000 in (and I didn't even notice it go, the joys of automatic deductions over a long period of time!) and now it's worth just under $40,000. So I've roughly doubled my money in 15 years. Does that tell me anything?

Unfortunately, without knowing when you put in contributions it is impossible to ever compare this investment to a benchmark like the SP500.*
That said, you saved money, and it increased in value.  Good for you! Given the shock to the global economy in 2008-09, a doubling of money isn't too bad, especially we guestimate that ~half of your contributions were made within the last 7.5 years.

Any savings that beats inflation is a good thing.  From here-on out keep track of your contributions - when and how much you contributed.  THen you can calculate how the fund is doing relative to the market in general.  Or you could just buy shares in an index fund and know you are matching the market (- the annual fee).

Keep on!

EDIT:  Managed funds are infamous for hiding their true fees.  The only place you can really find them will be buried deep in the prospectus literature.  Just because they only listed $110.09 in fees/charges doesn't mean that they aren't also taking a % of your portfolio every year.  In fact, I expect that they do.  Virtually all funds do.  Most managed funds charge anywhere from 1%-2% per year.  Worse, there are funds that are back-loaded (they charge a %you to sell shares) or front-loaded (they charge you a % to buy shares). 
I'd check them out by going to www.morningstar.com and entering in the 5 letter ticker symbol.  It will tell you the load (hopefully this will be "none") and the expenses (x.xx%)

[MDM]

To get the most accurate average return you could take each separate investment, apply the compounded interest formula from the time of investment to now, and sum them.  Perhaps tedious but doable using a spreadsheet.  Use one cell to hold the interest rate, then use Excel's Tools>Goal Seek to adjust the interest rate so the sum equals your current account value.

Somewhere in between, you could take some weighted average of the time invested.  E.g., if you have been putting in about the same amount every year, (37863.74/19900)^(1/(14.75/2)) - 1 = 9.11%.  This is not "correct" but it would be "closer to correct" - and perhaps close enough for your purposes.  It's also closer to what the fund itself claims, and there is at least a chance they are correct.

It appears to have been a good investment.

Still curious, however, about those "Distributions paid in".  One could say "19900 + 35668 = 55568 paid in, but now worth only 37864"...?

[Kaminoge]

Sorry! I copied the wrong number off the spreadsheet. The last post made me realise that.

Distributions paid in were $15877.93

That plus the $19,900 come out to a little less than what the account is now apparently worth. No wonder what I typed didn't make sense!

I'd check them out by going to www.morningstar.com and entering in the 5 letter ticker symbol.

Where would I find that (the 5 letter ticker symbol)?

Managed funds are infamous for hiding their true fees.

The put 1.77% on their information but then in tiny print they list all the things that aren't included in that so I'm guessing it's quite a bit more.

Given the shock to the global economy in 2008-09, a doubling of money isn't too bad, especially we guestimate that ~half of your contributions were made within the last 7.5 years.

The fund is all in Australian shares and I don't think the market in Australia really took a hit so maybe that is why. It's the managed fund of a major bank there so it's likely it's not a spectacular deal. Like I said I originally got into it because they had a nice low entry fee and then I've just sort of let it chug along. Because I don't live in Australia (but all my investments are there) I haven't been anywhere near as proactive as I probably should have.

By the way apart from a 12 month period in 2002/2003 where I put in $200 a month (not sure why but that's the one year I've lived in Australia out of the last 15 so maybe that had something to do with it) I've always put in $100 a month. So it's a little bit loaded towards the earlier days (and of course the initial $1000) but not horribly so. Maybe I'll take the challenge and build a compound interest spreadsheet for the different contributions as suggested. It would be interesting to see how much of a difference there was between my initial rough calculation and one made that way.

[Kaminoge]

Oh another question if anyone would care to chip in.

I'm thinking of putting $20,000 into some sort of Vanguard fund.

If this investment is doing ok would it make sense to just leave it alone and then have the Vanguard separately? Of should I either stick with this or take the money out and put $60,000 into Vanguard? In other words is there any advantage in having it all in one spot or does it make sense to spread my money around all over the place?

My goal is FI (although not necessarily ER - my job allows me to work all over the world and gets me visas. I'm not in a hurry to give that up) but the main thing I'm counting on is my property investments. I'm just starting to feel like I should dabble in more than just property - hence trying to figure out what else I've got going on. I've also got some money in Super somewhere. Figuring out what's there is next on my list!

[Cwadda]

Oh another question if anyone would care to chip in.

I'm thinking of putting $20,000 into some sort of Vanguard fund.

If this investment is doing ok would it make sense to just leave it alone and then have the Vanguard separately? Of should I either stick with this or take the money out and put $60,000 into Vanguard? In other words is there any advantage in having it all in one spot or does it make sense to spread my money around all over the place?

My goal is FI (although not necessarily ER - my job allows me to work all over the world and gets me visas. I'm not in a hurry to give that up) but the main thing I'm counting on is my property investments. I'm just starting to feel like I should dabble in more than just property - hence trying to figure out what else I've got going on. I've also got some money in Super somewhere. Figuring out what's there is next on my list!

Quick story about this:
When I was 18 and had no idea about investing education, I put 3k in a Roth IRA with American Funds. Later, when I discovered MMM and moving towards bettering my financial education, I read about Vanguard and the "truth" about fees.

Turns out American Funds was charging me 5.67% as a front load fee (to put your money in) plus a 0.70% annual fee. 0.70% you say? That's low! Actually, no. Compare that with Vanguard's 0.17% fee for investor shares. Over 50 years, that's HUNDREDS of THOUSANDS of dollars. Needless to say, my entire American Funds account is being transferred to Vanguard in 10 days and counting.

For financial education:
Reading: http://jlcollinsnh.com/stock-series/
Viewing (around an hour): http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

[RealCanadianSavings]

Try looking for a good tvm calculator. And you should be thinking about compound interest, because it paints a different picture than simple interest. Ignoring the $200 a month in that one year and assuming on the bi-annual distributions are you compounding periods (I think this is right.... )

PV: -1,000 (Initial contribution)
FV: 35,667.84 (Current value)
PMT: -$644 (Bi-annual contribution 644*14.75*2 = $19,000, which is just over $100 a month)
n: 29 (Compounding periods = 14.75*2)
=
i: 7.49% per year  ( i * 2 assuming bi-annual)

The math for the CAGR (i = (FV/PV)^1/n -1) is for a lump sum, so you should really try to figure out the compound interest.

I'm guessing that the distribution is dividends paid and that your fund is reinvesting them (a drip). However, having a distribution of $2000 means that it might include return of capital (roc). Generally ROC comes from funds that "guarantee" a minimum return. What they are really doing is giving you your $$ back to even things out in a bumpy environment.

As for having saved $20,000 over 15 years ... Good Job. (Building a stache is great.) You might want to figure out just how much you're paying in fees and then see if you could have had a better return over the last 15 years if you had invested in a diversified portfolio of ETFs instead (and slept just as well).

You should check if the fund has a deferred sales charge. The dsc means that if you try to take out a lot of the $$ all at once then you'll get hit with fees when you remove it. Because of that, you might not want to invest in the fund any more (or start slowly removing it if there is DSC in order to minimize fees).

Vanguard generally offers good indexed funds at low fees. You'll have to figure out your asset allocation and risk tolerance, etc.

[nereo]

Where would I find that (the 5 letter ticker symbol)?

normally it works just to google the exact name of the fund (e.g. "Vanguard 500 Fund Index Fund Investor Class").  You can also use the "search" function on financial websites like Morningstar or Yahoo Finance - again, putting in the fund name.

For whatever reason mutual funds have 5 letter symbols, whereas stocks have 1, 2, 3, or 4 letter symbols.

[Kaminoge]

Well now the web site of the fund has gone down and I can't seem to find the information by googling. As far as I know it's just called CFS MIS Imputation (Colonial First State Managed Investment Fund Imputation) but that isn't turning up anything in Morngingstar.

For financial education:
Reading: http://jlcollinsnh.com/stock-series/
Viewing (around an hour): http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

Thanks for the recommendations. I certainly start doing some reading from that list. I watched the PBS thing. Depressing viewing. It really made me aware of the fact that I (like most of the people featured) have just blindly handed over a decent amount of money and I really have no idea at all what kind of fees etc I've been getting charged. Once the website is back up I think it's time for me to do some investigating although if they are anything like as difficult to sort out as the ones on that show I don't know that I'll ever get to the bottom of it.

You should check if the fund has a deferred sales charge. The dsc means that if you try to take out a lot of the $$ all at once then you'll get hit with fees when you remove it. Because of that, you might not want to invest in the fund any more (or start slowly removing it if there is DSC in order to minimize fees).

Thanks for the tip (and the recommendation I use a tvm solver). I'll definitely look into this. I also need to be a little careful about the tax situation. I realised after posting that I also need to take into account that since I'm a non-resident I have no tax-free threshold and I'll have to look into capital gains tax if I go and sell this stuff to try and buy Vanguard.

[nereo]

Well now the web site of the fund has gone down and I can't seem to find the information by googling. As far as I know it's just called CFS MIS Imputation (Colonial First State Managed Investment Fund Imputation) but that isn't turning up anything in Morngingstar.

Curious - I'm not having luck finding the ticker quote either.
But, I did learn that the CFS Imputation has a 1.77% expense, which is on the high side.  Also, it underperformed to the benchmark (the ASX/S&P300) during the last three years - see: http://www.smh.com.au/articles/2004/11/02/1099362143855.html

My advice for you is to find the lowest-cost index fund you can get wherever you live now (oyu mentioned not being in Australia).  Fees kill your returns.  In the US both Vanguard and Fidelity are low-cost champions.
g'luck!

[Kaminoge]

Thanks for the link to that article.

Once I can get back into the account I'll definitely have to investigate any costs associated with getting the money out. I'll also have to talk to my financial adviser (otherwise known as dad) to ask what the tax situation is.

I have to keep investing in Australia because, despite only having spent one year there in the last 15, it's the only base I have. Right now I'm in Bulgaria - I won't be investing here! Before that I was in Japan, their financial system is nothing I'd want to have long term connections to either, before that it was China... you get the picture! Anyway the point is that I move every few years but my citizenship (and only passport) is Australian. The only place I feel like it really makes sense for me to invest is there.

[secondcor521]

If you have access to Microsoft Excel, you can use the XIRR function to very easily get your rate of return.  Look at the instructions, but basically what you do is enter into two columns money you put in or received and the date you put the money in or received it.  Then you go to any other cell and put in "=XIRR(those cells)" and it'll spit out the percentage.

Such a function almost certainly exists in Google Docs and Open Office and similar.

[nereo]

Right - I remember now... you bike with pepper spray and are occasionally harassed by packs of wild dogs.

There's always the option of just leaving that investment alone for now.  OVer the past 1, 3 & 5 years it has just barely trailed the benchmark, so all in all that's not too bad.  If you have new money to invest, I'd open up a low-cost index fund, and put future earnings into that.  Later down the road you can decide whether it's worth it to sell that investment (and pay any potential taxes) and transfer the money into your newer, lower-cost funds.

Enjoy Bulgaria.  One of these days I really need to make it over to Europe.

[Kaminoge]

Thanks all. I really appreciate the good advice of people on here. And the bad advice too :-)  gives me things to research.

secondcor I'll look into that. I don't have excel, I'm using googledocs so I'll see what they have. I won't hold my breath though, I know with stats stuff they are still well behind excel. Otherwise I'll look into excel when I'm at work.

nereo - yes, that's me. The pepperspray girl!

Thanks for telling me it's not that bad. I'll find out about withdrawal fees and tax stuff and then decide. I'm thinking of investing an additional $20,000 and I'm definitely looking into Vanguard for that. There's no rush. Since I've managed to go 15 years without worrying about it (I really was shocked to find that I'd opened that 15 years ago) I can obviously afford to not make any sudden moves. Even if I do just decide to keep it for now I think it will be good for me to know exactly what they are charging and why. I feel kind of silly for not having bothered before.