4 ms·

is 15% realistic?

by internet_points 1y ago

is 15% realistic?

roberdam 1y ago
11% is a safe interest rate on my country (py), I just got a 14.5% offer for local bonds BBB+
- philipwhiuk 1y ago
  It's less surprising Paraguay has 14.5% interest rates when you realise there's persistent 4% inflation (spiking to 11% in 2022). Effective interest rate is something like 7-10%
loloquwowndueo 1y ago
Not in real-life terms, but for a kid, a larger interest rate will be less slow and boring than a realistic one, and it will be more engaging. “The first national bank of dad” is a book that suggests a similar approach and I believe it also advocates a 15% interest rate.
- Esophagus4 1y ago
  I remember watching the statements for my savings account as a kid and getting like 2¢ of interest per statement and thinking… that’s it?? Why bother??
normie3000 1y ago
Yes, in Brasil and South Sudan: https://en.wikipedia.org/wiki/List_of_countries_by_central_bank_interest_rates https://en.wikipedia.org/wiki/List_of_countries_by_central_b...
- dlisboa 1y ago
  Those two aren't similar. Brazil's annual inflation is 4-5%, you get 10% real return. South Sudan is 74% against your 15% return: you lose money.
- elAhmo 1y ago
  So, not really.
xnx 1y ago
No. Since the late 1920s, US stocks have yielded an average real annual return of about 7%.
- Sammi 1y ago
  Source: "Since 1957, the S&P 500 has delivered an average annual return of 10.54%, but when adjusted for inflation, the real return drops to 6.68%." https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average... And on top of that there's huuuuuuuuge variance over time. You have to scale in and out of the market over a very long time to actually get the ~7%. Any one time investment is just a straight up gamble. It's only in aggregate over a long time that you get something somewhat reliable. But then the numbers aren't that impressive. I understand why people are so fond of buying bigger or second houses instead. It's a shame because it drives up the price of housing making it less available for our young. We're basically saving for our future by robbing the future of our young. It's pretty dark to be honest.
  - Esophagus4 1y ago
    Yes, the trick with houses is that it’s the only chance most retail can get 5:1 leverage. Your brokerage will never extend that to you to invest in equities. But without leverage, long run return of residential real estate is like 3% after costs, which is less than equities but above bonds. At least that’s what I tell myself as I go to sleep in my apartment, a non-homeowner watching people accumulate serious paper gains in their houses ;( Source: a paper called the real return on everything.
    - zipy124 1y ago
      Leverage comes with a cost though through interest rates. It is entirely possible (and even typical) to come out with a loss even on appreciating real estate, since your house must appreciate by more than the interest on your loan. In the UK at-least you can get 1:5 leverage on equities, but you'd be looking at a 20-25% APR, instead of the 5% mortage. The paper "the real return on everything" notably cuts off in 2010 and is talking about global averages, if you narrow it down to specific countries we can see stark differences. In the USA and UK you get 8.4% and 7.2% returns on equity, but only 6.03% and 5.36% returns on housing, a stark difference. Adding in mortage leverage adds on about a percent or so of return, thus still not bringing housing in-line with equities. If we narrow our window to post 1980, we see in the UK returns of 9.34, 6.81 and 6.67 % for equity, housing and bonds. If we look at post 2010 in the uk, house prices have only stayed the same or decreased in real terms since then in the uk for instance, whilst equities have soared. They also in the paper assume bond yields are roughly the same as mortage interest rates, which maybe was true for their data period, but hasn't been true since 2010 (https://www.housepricecrash.co.uk/forum/uploads/monthly_2022_04/5yrMortgageGilt.PNG.72667b041dde0418d58037d4d02c48be.PNG https://www.housepricecrash.co.uk/forum/uploads/monthly_2022...) Finally you can diversify equities globally, you cannot diversify your housing globally (if using leverage in a mortage).
singpolyma3 1y ago
/me looks at market gains for 2025
thelastgallon 1y ago
87% in Argentina.

is 15% realistic?

roberdam 1y ago

11% is a safe interest rate on my country (py), I just got a 14.5% offer for local bonds BBB+

philipwhiuk 1y ago
It's less surprising Paraguay has 14.5% interest rates when you realise there's persistent 4% inflation (spiking to 11% in 2022). Effective interest rate is something like 7-10%

loloquwowndueo 1y ago

Not in real-life terms, but for a kid, a larger interest rate will be less slow and boring than a realistic one, and it will be more engaging. “The first national bank of dad” is a book that suggests a similar approach and I believe it also advocates a 15% interest rate.

Esophagus4 1y ago
I remember watching the statements for my savings account as a kid and getting like 2¢ of interest per statement and thinking… that’s it?? Why bother??

normie3000 1y ago

Yes, in Brasil and South Sudan: https://en.wikipedia.org/wiki/List_of_countries_by_central_bank_interest_rates https://en.wikipedia.org/wiki/List_of_countries_by_central_b...

dlisboa 1y ago
Those two aren't similar. Brazil's annual inflation is 4-5%, you get 10% real return. South Sudan is 74% against your 15% return: you lose money.
elAhmo 1y ago
So, not really.

xnx 1y ago

No. Since the late 1920s, US stocks have yielded an average real annual return of about 7%.

Sammi 1y ago
Source: "Since 1957, the S&P 500 has delivered an average annual return of 10.54%, but when adjusted for inflation, the real return drops to 6.68%." https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average... And on top of that there's huuuuuuuuge variance over time. You have to scale in and out of the market over a very long time to actually get the ~7%. Any one time investment is just a straight up gamble. It's only in aggregate over a long time that you get something somewhat reliable. But then the numbers aren't that impressive. I understand why people are so fond of buying bigger or second houses instead. It's a shame because it drives up the price of housing making it less available for our young. We're basically saving for our future by robbing the future of our young. It's pretty dark to be honest.
- Esophagus4 1y ago
  Yes, the trick with houses is that it’s the only chance most retail can get 5:1 leverage. Your brokerage will never extend that to you to invest in equities. But without leverage, long run return of residential real estate is like 3% after costs, which is less than equities but above bonds. At least that’s what I tell myself as I go to sleep in my apartment, a non-homeowner watching people accumulate serious paper gains in their houses ;( Source: a paper called the real return on everything.
  - zipy124 1y ago
    Leverage comes with a cost though through interest rates. It is entirely possible (and even typical) to come out with a loss even on appreciating real estate, since your house must appreciate by more than the interest on your loan. In the UK at-least you can get 1:5 leverage on equities, but you'd be looking at a 20-25% APR, instead of the 5% mortage. The paper "the real return on everything" notably cuts off in 2010 and is talking about global averages, if you narrow it down to specific countries we can see stark differences. In the USA and UK you get 8.4% and 7.2% returns on equity, but only 6.03% and 5.36% returns on housing, a stark difference. Adding in mortage leverage adds on about a percent or so of return, thus still not bringing housing in-line with equities. If we narrow our window to post 1980, we see in the UK returns of 9.34, 6.81 and 6.67 % for equity, housing and bonds. If we look at post 2010 in the uk, house prices have only stayed the same or decreased in real terms since then in the uk for instance, whilst equities have soared. They also in the paper assume bond yields are roughly the same as mortage interest rates, which maybe was true for their data period, but hasn't been true since 2010 (https://www.housepricecrash.co.uk/forum/uploads/monthly_2022_04/5yrMortgageGilt.PNG.72667b041dde0418d58037d4d02c48be.PNG https://www.housepricecrash.co.uk/forum/uploads/monthly_2022...) Finally you can diversify equities globally, you cannot diversify your housing globally (if using leverage in a mortage).

singpolyma3 1y ago

/me looks at market gains for 2025

thelastgallon 1y ago

87% in Argentina.