Syndicate
Savings Plan
For effects of analysis, and in consideration of those that have already been working for a few number of years, we will allow ourselves to take en example of a long time period of twenty years. For younger people, thinking about a time period of twenty years in the future might seem like a lifetime; but for an adult that is forty or over, to look back feel as it were yesterday and realizing that it was almost yesterday when he or she was twenty. This must be because looking at the road that one has already gone through is a lot easier, than for a young person, whose natural uncertainty of the future makes him avoid himself of the entertaining present activities that exist these days, with a whole world in front of him to explore. Let’s say that person’s interest rates are in between 0.5 percent to 2.5 percent. Depending on the capacity of the person to make a risk with his savings, there are different options that are going to be very safe and others are not going to be as safe. For example, consider the option that is safe of fixed deposits in a savings account of a banking system, which in average have given, in the last fifteen years, around an interest rate of 0.5 percent a month. This is considered as an option of medium risk, due to the composition of fixed rates and variable rates, the option of the savings accounts in the Pension Funds that have an average profitability in some places. Bond Funds is considered to be at higher risk when it comes to savings and some have a profitability of around 1.6 percent of monthly interest.
Results
For the minimum option of risk, 0.5 percent as a real monthly rate, the initial amount of 1 dollar makes twenty years of savings turn into an amount of 3.5 dollars. If we suppose that the initial amount were of $10,000, then at the end of the period we will have obtained $35,000. The average annual profitability was of 12.5 percent. While in terms of profitability, the amount is not that low, we have to admit that it does not impress anybody. For the option of medium risk, 1.0 percent as a real monthly rate, the initial amount of 1 dollar has turned into 11 dollars. If we suppose that the initial amount were of $10,000, then at the ending of the period we will have obtained $110,000. The average annual profitability of the periods was of fifty percent and the figure that is obtained is not bad at all. But if we analyze the option of greater risk, 1.6 percent as a real monthly rate, the initial amount of 1 dollar will have transformed into 45 dollars. If we suppose that the initial amount was of $10,000, then at the end of the ending of the period we will have obtained $450,000. The average annual profit was of 220 percent and the figures obtained are truly incredible. The average monthly profit reaches these incredible levels due to the exponential effect of increase of capital in the last years of the period. The most interesting conclusion is that choosing for higher risk in a period of twenty years, does not involve such a risk. Most likely the profit of each year will have oscillations all throughout the period, but since it is in the long term, the possible fluctuations that show up will not be able to affect the profitability at the end of the period. The mistake of moving transferring the concept of risk of bond funds in the short term to objectives in the long term is always done, which is not applicable in this case.