Compound to simple interest calculator

Phosphoric

Does anybody have a link to a calculator that will help me check the efficiency of a S&S ISA with Hargreaves Lansdowne please?

Over three years I have invested an initial lump sum and then added a fixed amount each month. My account shows the current value and the amount invested (including fees I think) and then shows a very simple profit % over the three years.

I would like to calculate what the equivalent simple APR that this equates to.

Thanks

psychic_teabag

Not very easy since the price of the units would also be changing over that period.

Phosphoric

Agreed psychic teabag, I'm just looking for a reasonable comparison.

For example, H&L's calculation on my account is roughly 13%.

I have a calculator that works out APR based on a single lump sum deposit over the time period of 3 years which is about 4.9%.

Since I have been adding to the original lump sum every month, I suspect the real APR is somewhere between the 2 figures. Just like an idea just how much better

bowlhead99

Do you have a spreadsheet like excel? If so, XIRR is the formula:

Create a list of cashflows in one column and a list of dates next to them

So for example your cashflows are
30/4/2013 £-1000
31/5/2013 £- 100
15/6/2013 £- 100
Etc etc etc
25/2/2016 £- 200
29/3/2016 £- 200
20/4/2016 £- 200
21/4/2016 £8000
The last cashflow, which is a positive number instead of all the others being negative, is what you are pretending you received today if you cashed out the whole amount at its current value in the HL account.

The formula is then =xirr(the range that holds the values, the range that holds the dates, guess)

The "guess" is simply what you guess the annualised return is, as a decimal, and gives excel somewhere to start. If the total value out is more than the value in, guess 0.05 (i.e. 5%). If negative, guess -0.05 (i.e. negative 5%). Then excel will be able to come back with a sensible annualised internal rate of return. In some situations if you leave out the guess it can give a bizarre answer or get stuck because there can be a number of different positive or negative rates that could technically work based on its internal logic when it does all the number crunching in the background.

Phosphoric

Thanks bowlhead99, I'll give that a go.

psychic_teabag

If I can remember my shool algebra on series...

Suppose the monthly growth is 'r'. The lump sum 'L' has been in 36 months, so has grown L*r**36. The monthly pieces have grown by r, r**2, r**3 etc, with a sum of M*(r**37-1)/(r-1). One way to solve is to just plot a graph of the total against different values of r, and then pick out the value of r that corresponds to the value you now have.

I tend to use gnuplot for drawing quick graphs.

(ETA: I have probably assumed first monthly payment went in on day 1. So eg for 1000 + 50pm, use L=950 so that the other 50 was the first monthly contribution.)

psychic_teabag

For a regular saver, the rule of thumb is that the money has been in for an average of roughly half the total time, so you just treat it as if it was half the amount for the whole time. So you could approximate by saying that it was roughly an amount of (L+18*M) for 3 years. This assumes timescales are short enough that compounding hasn't really kicked in yet.

(Which is consistent with my test graphs being roughly linear for small values of 'r')

redux

If you don't have a spreadsheet, you might do some useful tinkering at

http://www.thecalculatorsite.com/finance/calculators/savings-calculators.php

Or HL has its own http://www.hl.co.uk/tools/calculators/regular-savings-calculator

Phosphoric

Using that very useful formula I get the following:

Invest the whole amount on day 1 APR = 3.78%

Drip feeding over that whole period APR = 4.5%

So, not a brilliant return but there has been no where else I could have invested the sums involved to get that sort of return with no risk.

Only 3 years in though

AndyT678

Phosphoric wrote: »

there has been no where else I could have invested the sums involved to get that sort of return with no risk.

Why do you think that investing in an S&S ISA with Hargreaves Lansdowne is no risk? :huh:

colsten

redux wrote: »

If you don't have a spreadsheet,

just go to Google Sheets.