Returns on Australian Dollar Term Deposit ( Part 1)

From the image above we can take a conservative average of 4.5% on the returns on the Australian term deposits. Based on the previous posts on the aud vs sgx charts. I will now discuss the strategy i have.

Strategy

This strategy is basically a buy and hold strategy and is NOT intended for traders or investors with a short term perspective. The investor must restrain themselves from collecting the rewards early on, but rather allow the powers of compounding interests to do its magic.

I have further divided this into 2 different methods, depending of the sophistication of the investor in technical and financial analysis. We shall first take a look at the basic strategy.

Basic

The basic strategy is to simply invest SGD $10000 into a fixed term deposit, When the aud vs sgd is 1.0000 or below. As a rule once we have invested in the term deposit, I am putting in place a grace period of at least 6 months. This is done as it is not realistic to invest 10000 each time it fluctuates.

Let us look at how much we would have now, if we had invested SGD $10000 since 1999 (10 year period).

Amount: SGD 10,000
Interest rate: 4.5%
Time: 10 Years

On 7 Aug 2000, the AUD vs SGD had an exchange rate of 0.9925. So,

Capital Invested
SGD $10000 = AUD $10075.57

In 12 Feb 2001
Interest reinvested it would be worth:

In the formula below, i is the effective interest rate per period. FV and PV represent the future and present value of a sum. n represents the number of periods.

FV = 10075.57 (1 + 0.045)^(6/12)
FV = AUD $10299.78

On 12 Feb 2001, the AUD vs SGD had an exchange rate of 0.9188. So,

Capital Invested
SGD $10000 = AUD $10883.76
Total investment now = $10299.78 + $10883.76 = $21183.54

 

 
13 Aug 2001
FV = 21183.54 (1 + 0.045)^(6/12)
FV = AUD $21654.92

On 13 Aug 2001, the AUD vs SGD had an exchange rate of 0.9373. So,

Capital Invested
SGD $10000 = AUD $10668.94
Total investment now = $21654.92 + $10668.94 = $32323.86

18 Feb 2002
FV = 32323.86 (1 + 0.045)^(6/12)
FV = AUD $33043.14

On 18 Feb 2002, the AUD vs SGD had an exchange rate of 0.9393. So,

Capital Invested
SGD $10000 = AUD $10646.23
Total investment now = $33043.14 + $10646.23 = $43689.37

19 Aug 2002
FV = 43689.37 (1 + 0.045)^(6/12)

FV = AUD $44661.56

On 19 Aug 2002, the AUD vs SGD had an exchange rate of 0.9545. So,

Capital Invested
SGD $10000 = AUD $10476.69
Total investment now = $44661.56 + $10476.69 = $55138.25

To be continued in the next post.....