Funds

Mach Two

How do I interpret fund performance. I see 3 mts,6 mts,1 yr etc. and a percentage given ie. 3.3 or 3.5%. On another graph I see anything up to 50%. How are theses gains calculated and over what time scales.

PaMcD

Mach Two wrote: »

How do I interpret fund performance. I see 3 mts,6 mts,1 yr etc. and a percentage given ie. 3.3 or 3.5%. On another graph I see anything up to 50%. How are theses gains calculated and over what time scales.

It could either be annualized rates of return or effective rates of return.

Annualized rates are the return if the performance continued over an entire year (e.g. If your fund grew by a 10% in just 3months (1/4th of the year, the annualized rate of return is 40%)

Effective rates are the actual rates of growth for the period specified (10% in the case above)

You use annualized rates to make it easier to compare different rates as they're all on the same time scales

Effective rates are what actually happened over the period.

To answer your ambiguous question, the timescale is whatever they say it is (effective rates over 3/6months or annualized rates in which case means 1year)

And how they are calculated depends on what assumptions you make, but it's roughly value at the end divided by value at the start of the period less 1.

Mach Two

So the initial €1000 investment would grow to €1500 after 5 yrs. It says 50.38%. So a 10% gain per year on average. Or would it less than 10% a yr as the gain would be compounded. It says 8.5% with 5 yrs above it.

PaMcD

Mach Two wrote: »

So the initial €1000 investment would grow to €1500 after 5 yrs. It says 50.38%. So a 10% gain per year on average. Or would it less than 10% a yr as the gain would be compounded. It says 8.5% with 5 yrs above it.

So the 50.83% is the effective rate for 5 years, and the 8.5% is the annualized rate assuming annual compounding (i.e any gains are accumulated in a separate growth less fund and added to the original fund once a year)

10% would be the annualized rate assuming no compounding (the accumulation is in a separate pot, not growing at all for 5 years)

Make sense?

Mach Two

Makes sense all right. Would those figures be a very high growth rate? With deposit rates at an all time low.

PaMcD

Mach Two wrote: »

Makes sense all right. Would those figures be a very high growth rate? With deposit rates at an all time low.

Entirely depends on the level of risk taken and prevailing risk free rate.

Is 6% really good return? Not if the central bank risk free rate is 5%.

The appropriate level of risk to take depends on your financial situation. Loads of factors go into that decision.

Mach Two

Thanks for the above P McD . Any idea how must the banking institutions/financial advisors have out of theses funds.