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Re SIP dividends, how would I calculate an equivalent interest rate
confused_I_think
Posts: 19 Forumite
Hi.
I participate in a works SIP, making contributions every 4 weeks, dividends are paid every twice a year and reinvested.
I should like to calculate an equivalent interest rate on, probably, an annual basis
Is there a program or formula?
Thanks
I participate in a works SIP, making contributions every 4 weeks, dividends are paid every twice a year and reinvested.
I should like to calculate an equivalent interest rate on, probably, an annual basis
Is there a program or formula?
Thanks
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Comments
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confused_I_think wrote: »Hi.
I participate in a works SIP, making contributions every 4 weeks, dividends are paid every twice a year and reinvested.
I should like to calculate an equivalent interest rate on, probably, an annual basis
Is there a program or formula?
Thanks
I do this with my SIPP for fun but unless the SIPP is very broad based across asset types, geographical areas and sectors, and is passively managed, it is a fairly meaningless process annually. If you could look at it over 5 years that might have some value.
I'd suggest if the SIPP portfolio is not too large that you feed it into a virtual portfolio (I use trustnet) and compare performance against the interest curve.
For something more crude just add up the total interest and the total dividends and compare. Then add in any capital growth, which might be negative, and do the same again.
Likely you will see great variance year on year. If I look at my rather conservative SIPP (I'm 60 and playing safe
) I have a 6% gain over 6 months. Beats interest hands down. But will it be the same in a year if the US falls off a cliff, or even if there is a correction based on profit taking ??? I believe past performance is a good guide to future performance :beer:0 -
I think the OP is referring to a Share Incentive (or Investment?) Plan rather than a SIPP.
The difficulty is calculating the underlying rate of return when one is making contributions at the same time. The only practical way I know to do this is using Excel either
1) By assuming an interest rate and calculate the end of year total over 13 4week periods:
After 4 weeks:
TOTAL=PREVIOUS TOTAL*(1.0n)^(1/13)+CONTRIBUTION
One can then adjust the assumed interest rate until the total after 13 4 week periods matches reality.
2) Use of the IRR function. I have never tried this.0 -
if you are spreadsheet savvy you might be able to use th excel xirr function which is claimed to do this
broadly (one column per month) put the investment date in (ROW 1), with the first date in cell A1
under this put the amount of money you paid in row 2 - ie with the first amount in A2
then in the column after your last investment put your current SIPP value in with a -ve value (think of it as how much you would withdraw if you closed the scheme - even though that is not allowed)
then put a formula in a free cell (ie not in row 1 or 2) and input =xirr(2:2, 1:1) and that should give you a percentage return as a number like 0.05 wouild be 5%
(If this is wrong someone let me know as its how I'm keeping track - but not really concerned about beating savings interest as I know that is not in my long term interestI think I saw you in an ice cream parlour
Drinking milk shakes, cold and long
Smiling and waving and looking so fine0 -
confused_I_think wrote: »Hi.
I participate in a works SIP, making contributions every 4 weeks, dividends are paid every twice a year and reinvested.
I should like to calculate an equivalent interest rate on, probably, an annual basis
Is there a program or formula?
Thanks
I use XIRR to calculate annualized returns. You can find it on Excel/Open Office and merely a list of cash flow and dates so it will calculate more accurately.
Cheers,
Joe
EDIT: Oops, took too long to write this post. 0 -
Yep XIRR would be what you're after.
It takes a series of transactions and a current value, along with associated dates, and gives you an equivalent interest rate (ie what interest rate you would need in a bank account to get the same outcome)
You only want to include "buy" transactions where you've actually PUT MONEY IN, so don't include rows for your dividend payment/reinvestments. Your final "value" row should of course be the TOTAL current value including those shares bought through the reinvestments.
http://www.oldschoolvalue.com/blog/investment-tools/calculate-xirr-annualized-returns/0 -
Ta folks, it is an SIP rather than an SIPP, I'll look up this XIRR thing and have a look at Linton's formula.
I do have it on a spreadsheet but MS works not excel, I will see if I have excel somewhere, it may be on my laptop rather than on my 'wound up by a key' PC.0 -
confused_I_think wrote: »Ta folks, it is an SIP rather than an SIPP, I'll look up this XIRR thing and have a look at Linton's formula.
I do have it on a spreadsheet but MS works not excel, I will see if I have excel somewhere, it may be on my laptop rather than on my 'wound up by a key' PC.
You could download OpenOffice and use OpenCalc? That's what I did.
Cheers,
Joe.0 -
Down loading OpenOffice as I type.0
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