Monday, July 9, 2012

Inflation adjusted rate of return on investments.

So far my portfolio has been very conservative, even now exposure to cash & precious  metals is 56%, before that it has been almost 75%. 

Large exposure to cash is still going to be inevitable, as my emergency fund is equal one year worth of expenses.  I will reduce it to 22% by 2016, by investing money into the stock market.

I was curious to find out, what sum  should I have if instead of investing into the stock market and keeping cash on the savings account I would bought TIPS (Treasure Inflation Protected Securities).

In July my nest egg networth  was $192,700 (£122,700) - the savings of $3,300 is subtracted.

I took inflation rates for each year and start adjusting my investments:

I took two countries as benchmark - the USA and the UK.
As you could see I should have either $191,244 or £137,467 as the inflation in the UK has been higher. Obviously it made the UK over the last 5 years more expensive.

Being on the point it demonstrates that keeping money on the savings accounts simply not worth it I gained merely $,1500 by doing it and it was poor selection of the investments. Half of the decade is simply lost.

This is probably the best measurement – your own history of the investments, inflation adjusted return. The numbers will tell you the story.

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