CALCULATORS:

Mortgage/Car Loan Amortization Calculator - calculates the monthly payment required to amortize a loan after being provided the number of years, interest rate, and amount borrowed.

Investment Return Calculator - calculates the final value of an investment after being provided a principal investment (if any), a term contribution (if any), the expected annual interest rate, the number of terms each year (for contributions and interest compounding), and the number of years. Because this is done assuming rates will stay the same it is a future forecast (unless rates are locked by contract) and can not be expected to provide a 100% accurate value.

Annual Growth Rate Calculator - calculates the annualized return an investment has produced based on the original cost, final/current value, and time elapsed. This provides a historical basis upon which one investment can be compared to another. It differs from the Investment Return Calculator because it looks at past, actual returns instead of forecasting future returns.

Doubling Time Calculator - calculates the amount of time an investment will take to double based on the interest rate. This calculator can actually calculate time for any multiplier and not just doubling time.

HOW MUTUAL FUNDS WITH LOADS CHEAT YOU:

One fund I purchased had A-class shares, according to the prospectus, with a maximum 5% load. I try to avoid loaded funds in general but bought this one due to a good long-term record with low turnover and no management changes. I never expected the management to deceive me (and all potential investors) by charging more than that 5% maximum, however. If you bought something on sale for 5% off that was normally $100 what would you expect to pay? I would expect to pay $95. But, the way my fund does math, the actual price would be $95.24. How is it that a 5% discount from $100 is $95.24 and not $95 even? Let's look at an example to see what they are doing to pocket more of my (and everyone else's) money:

Say I have $10,000 to invest and the Net Asset Value (NAV) of the fund for the day is $25 per share. Any normal and honest person would say that adding a 5% load to the cost of the fund would make it $25 + .05 * $25; or $26.25 per share. But my fund company looks at things differently. They think that everyone else in the world's valuation of their fund (the NAV) is wrong and is actually a discount price for it. So, they figure out what the "actual value" is by figuring out what $25 is 95% of ($25 = .95x). To get that answer simply divide $25 by .95 which is $26.32. That's a difference of $0.07/share from the honest way of computing a load and a difference that goes straight to the pockets of the fund's management instead of going to work for investors like it should. Apparently, getting $1.25/share along with the annual management fee isn't enough for them and so they feel obligated to shave these few extra cents from investors through deceptive math.

How does this affect purchases? Well, if you invested $10,000 at a cost of $26.25/share you would end up with 380.952 shares ($10,000 / $26.25). However, if you invest that same $10,000 at their dishonest cost of $26.32/share you end up with 379.939 shares. That's more than one share less! If you compute what the actual load they are charging is, you end up with 5.02% (calculated as ($10,000 - 379.939 * $25) / $10,000) and not 5%. The SEC reforms that quelled short term fund trading at the expense of long term investors are a good start to cleaning up the fund industry but, obviously, we have more work to do!

AN ACCOUNTING DILEMMA:

Would you rather have a 17.52% or a 7.81% return on your investments? Well, I have accomplished both. What's so unusual about that? I accomplished those different returns on the same investment in the same period of time! How could I have two different returns on the same investment? It's all in the accounting. Below I outline two methods of determining performance on my stock portfolio. They illustrate how important accounting principles applied to any computation are and how different the results can be even when dealing with the same numbers. I feel that both of the computational methods to determine performance are valid. However one indicated I had achieved more than double the return of the other.

Therefore, the total cost of purchase of all stocks before commission was $2873 ($665 + $450.5 + $225 + $375 + $682.5 + $475). If sold, the total return on all stocks before commission would be $3336 ($960.5 + $990 + $71 + $526 + $170.5 + $618). The total buy commission was $110 and the total sell commission, if sold, would be $120.

METHOD 1:

This method gives what could be considered an inflated rate of return. I assumed that I could determine the net worth of the portfolio at any time by simply computing the total value of stocks minus the cost of both buy and sell commissions. It can be surmised that the computed number would accurately state the dollar value of the stocks at any time. Thus, the net worth at purchase is the total cost of purchase minus buy and sell commissions, or $2643 ($2873 - $110 - $120). And the net worth if sold would be the current value minus buy and sell commissions, or $3106 ($3336 - $110 - $120). To compare $2643 (purchase value) with $3106 (potential sell value) gives a return of 17.52% (($3106 - $2643) / $2643 * 100).

METHOD 2:

The second method gives what could be considered an understated rate of return. I first computed the total price of my investment at purchase. This figure is simply the sum of the total cost at purchase and buy commissions; $2983 ($2873 + $110). Then I computed the cash value of the investment if sold. This figure would be the current value minus the sell commissions; $3216 ($3336 - $120). Comparing $2983 (total purchase price) with $3216 (money returned if sold) gives a return of 7.81% (($3216 - $2983) / $2983 * 100). This number is less than half the return produced by Method 1!

CONCLUSION:

Method 1 can be summarized as a comparison of the portfolio's value at the beginning of investment with the value at the end. Method 2 can be summarized as a comparison of the value of the money put into the investment with the value of the money taken out. What can be learned from all this? Read beyond the numbers! Numbers easily can be manipulated to produce favorable or unfavorable results. If I were running a mutual fund, of course I would use Method 1 and its higher percentage return to attract potential investors! However, for my personal use, I prefer Method 2. Something interesting to note is that my broker uses Method 1 on my financial statements. I'm sure this is done in an attempt to make me and other investors feel better about their investments.