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Reverse interest rate calculations
Old 07-06-2017, 11:57 AM   #1
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Reverse interest rate calculations

Probably discussed many times, but new to me.

Here's the thing... I'm not an investor in the normal sense of the word. Too conservative, and too old to take chances, so we put some money in IBonds a long time ago, when the rates were a little higher than they are today. Since the interest rate varies according to the CPI, I always wondered how it all averaged out.

Anyway, putting the numbers into a reverse interest rate calculator, the annual average... over about 11 to 14 years came out to a little over 5%.

Now... I wonder what that might have been if I had invested the money into a "safe" investment other than the US Government, over the same period (let's say in 2003).

Your choice of "safe".
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Old 07-06-2017, 01:57 PM   #2
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Dunno if this is apples and apples or not... but some numbers, based on the Dow.
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Old 07-06-2017, 09:34 PM   #3
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I wish WE had purchased a lot more I-bonds back in the early 2000's. I've been happy with the growth I've seen in the ones we did purchase. Since I-bonds beat inflation (by definition) they seem a pretty good bet for long term. No doubt one could have chosen something with a better return (especially in hind sight, heh, heh.) YMMV
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Old 07-07-2017, 02:59 PM   #4
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I looked-up the interest rate for an I-Bond bought in May of 2003 and calculated it's internal rate of return if cashed out November of 2016. It came to 6.78% annualized. My numbers were $10,000 to start in May 2003 and it ended November 2016 with $24,268.

Then I went to an S&P 500 CAGR calculator and it said $10,000 (in January 2003) turned into $33,800 by the end of December of 2016. That's 9.09% Annualized. Not exactly the same months because the calculator only allowed selection by year.

So the S&P 500 got about 40% more money than the IBonds.

BTW, if you're looking at the rate like I am, in nominal dollars, then you'd not mess with inflation (they both have inflation in them). So I "pretended" to take one batch of $10,000 of 2003 dollars and put it in the bonds and I took an identical batch and put it in the S&P 500 with dividends reinvested. Then I compared what would happen if you cashed each out in 2016.
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