Returns on Australian Dollar Term Deposit ( Part 2)

The australian dollar does not reach parity with the singapore dollar till 6 Oct 2008

6 Oct 2008

FV = 55138.25 (1 + 0.045)^(6)
FV = AUD $71804.34

On 6 Oct 2008, the AUD vs SGD had an exchange rate of 0.9423. So,

Capital Invested
SGD $10000 = AUD $10612.33

Total investment now = $71804.34 + $10612.33 = $82416.67

The current AUD vs SGD rate is 1.2317 (25/12/09), after coming off the high of 1.2987 (17/11/09). Let us now calculate how much our total gains would be up till this point.

25 Dec 2009

i am taking the interest rate to be 3%, since Oct 2008.
FV = 82416.67 (1 + 0.030)^(1)
FV = AUD $84889.17

Converting to SGD: AUD $84889.17 * 1.2317 = $104557.99

Total Amount invested in 10 years: SGD 10000 * 6 = SGD $60000
Profit: SGD $104557.99 - 60000 = 44557.99

We have made a profit of 44557.99 over 10 years.

Points to take note

• I have used a very conservative average of 4.5% in reality it is more likely to be around 5-5.5%.

• All figure have been rounded to 2 decimal places.

• The profit show above is the worst case scenario.
  

• Most banks usually have a better 6-month interest rate than i have used. As they find it easier to hedge their position as compared to a 12 month period
  

• The reader needs to understand that although investing in the S&P or STI would give better annual compounded rate of return. There is also more risks involved.  
  

• If the reader is a more sophisticated investor with knowledge of technical analysis, he/she can deposit in a more optimum position.

• Another point to take note is that gains in fixed deposits are not taxable and there is no cost involved in opening an account. Banks would only require a fee if you withdraw the deposit before the term ends.

If you are wondering, "Why dont i put in a lump sum of $100,000 for one deposit?". The answer is yes that would be more ideal, however i have taken into consideration that not everyone has $100,000 in cash.

In my next post i will include a more optimum return of the basic method. Happy Holidays!!!

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.....