Tuesday, March 12, 2013

Currency wars, Risk taking and Satisfaction

Risk taking

            With interest rates still low – some government bonds offer negative interest rates – the Eurozone crisis stabilizing and the US economy healthier, investors are emboldened.
              A huge amount of liquidity has been sitting in cash or negative yield bonds out of fear. As that recedes, a wall of money is flowing into financial assets. Debt markets are very accommodating and there is a lot of capital sloshing around.
             Some of the governments are more desperate than others – in the UK there has been serious discussions on imposing negative interest rates as a stimulus measure.  This will further undermine the savers efforts to earn meaningful money to preserve the capital against inflation.
              Spread between yields for highly-rated and lower-rated companies bond is far narrower than it is used to be. Investors are chasing returns, sometimes at all cost. It is not unheard off that emerging markets institutes rated at BBB- successfully selling bonds at 3.6 per cent in USD. This makes bonds rather risky and pricy investment.
              Investors are putting money in the assets they would not do otherwise for the premium they are getting – stock market at the current returns. Markets are almost at all-time high, while the returns are very low.   There is a risk of not only erasing value of the money, but erode the returns as well.

Tuesday, March 5, 2013

Rate of Return (ROI) on Real Life Investments

In 2012 I have acquired some investments and would like to review their effectiveness. The way I calculate rate of return is quite simple:
-         For the shares /equities with dividends paid:  (price at the end of the year – price at the beginning of the year + dividends paid)/ price at the beginning of the year.
-         For the mutual funds or shares with the dividends reinvested: (price at the end of the year – price at the beginning of the year)/ price at the beginning of the year.

I used my current investments as real life example of rate of return on the investments:

Vanguard Energy ETF - VDE
Gazprom OAO (GAZ:FRA)
Company shares
Number of holdings
248 to 260
30th December 2011
30,243 (@100.81)
32,130 (@10.71)
9005 (@36.31)
28th  December 2012
30,057 (@100.19)
8736 (@33.6)
537* (1.99 per share)
1219** (@ 0.45)
12 shares or 388**
Dividends %
Overall return $
Overall return %
*10% taxes paid.
** projected dividends, 10% taxes paid.