Annotated List of Retirement Asset Calculators

Annotated List of Retirement Asset Calculators

Sharpe Index – The Sharpe Index is a measure with which you may measure the performance of your portfolio over a given period. The important aspect of the Sharpe Index is that this performance indicator takes into consideration the risk of the portfolio.

In order to use the Sharpe Index, you must know three things; the portfolio return, the risk-free rate of return, and the Standard Deviation of the portfolio. For the risk-free rate of return, you may use the average return (over the period) of some government bond or note. The Standard Deviation of the portfolio is a measure of the systematic risk of the portfolio. Using the Standard Deviation, rather than the beta (as in the Treynor Index), you are assuming that the portfolio is NOT a diversified portfolio. If you are looking at the return of a mutual fund, this figure is typically available from the fund company itself (this and other measures are also available from the American Association of Individual Investors’ Guide to Mutual Funds).

Traynor Index – The Treynor Index is a measure with which you may measure the performance of your portfolio over a given period. The important aspect of the Treynor Index is that this performance indicator takes into consideration the risk of the portfolio.

In order to use the Treynor Index, you must know three things; the portfolio return, the risk-free rate of return, and the beta of the portfolio. For the risk-free rate of return, you may use the average return (over the period) of some government bond or note. The beta of the portfolio is a measure of the systematic risk of the portfolio. Using the beta, rather than the standard deviation (as in the Sharpe Index), you are assuming that the portfolio is a well-diversified portfolio. If you are looking at the return of a mutual fund, this figure is typically available from the fund company itself (this and other measures are also available from the American Association of Individual Investors’ Guide to Mutual Funds).

Jensen’s Alpha – The Jensen Performance Index is used to determine if the Required Return, calculated using the Capital Asset Pricing Model, is realized. The Capital Asset Pricing Model is used to determine the required rate of return (in order to assume the level of risk and the Jensen Performance index is used to see if the calculation yielded the results that you thought that it would.

In order to use the Jensen Performance Index, you will need the following; the realized return (on the portfolio), the market rate of return, the tax-free rate of return and the beta of the portfolio.

Dividend Growth Model – The Dividend Growth Model, often referred to as the Dividend Discount Model calculates the value of a stock based on the value of the future dividends paid by that company. This model does not take into consideration the current conditions in the market – only the value of the cash flows from the dividends.

The calculation is simple. The formula is Stock Value = Next Years’ Dividend / (Required Return – Expected Dividend Growth Rate)

So, for example, if a company pays a dividend of $2.00 per share and you expect this to grow at 5% per year and your expected return on the stock is 10%. The intrinsic value of this stock is $42. If the current price of the stock is $36, then the stock could be considered undervalued. Conversely, if the stock is priced at $44, it would be overvalued, based on this intrinsic value.

Holding Period Return – The holding period return is the rate of return (profit or loss) of an asset during the time for which it is held or owned.

You can either include or exclude income from holding the asset like interest (in the case of preferred stock or a bond) or dividends (as in a stock). It really depends on what it is that you want to understand. If you are only interested in the capital appreciation/depreciation return on the asset, then don’t include the income but if you want to understand the full return then include the income.

For example, if you purchased a stock for $10 a share and sold it for $15 a share, then your holding period return solely based on the change in the price would be 50%. If you want to include the $1 in dividends that you received during the holding period, then your return would increase to 60%.

Amortization Schedule – This calculator allows you to see how much you will be paying every month for your mortgage, how much is going to be interest, how much will be the paydown of your mortgage principle (the debt) and how much you will be paying out in other costs like property taxes.

401(k) Calculator – A 401(k) plan is a savings program sponsored by an employer (other than a government agency, that’s called something else). The 401(k) plan allows employees to save part of their pay with an option to make these funds tax deferred contributions. The tax deferral refers to the fact that the tax on both the deposits themselves as well as the earnings on these investments won’t need to be paid until a point in the future.

Holding Period Return – The holding period return is the rate of return (profit or loss) of an asset during the time for which it is held or owned.

You can either include or exclude income from holding the asset like interest (in the case of preferred stock or a bond) or dividends (as in a stock). It really depends on what it is that you want to understand. If you are only interested in the capital appreciation/depreciation return on the asset, then don’t include the income but if you want to understand the full return then include the income.

For example, if you purchased a stock for $10 a share and sold it for $15 a share, then your holding period return solely based on the change in the price would be 50%. If you want to include the $1 in dividends that you received during the holding period, then your return would increase to 60%.