Skip to main content

Compare stock portfolio to compound interest saving account

In investing, it is important to define the target that we want to achieve. Many investors like to compare their portfolios with a market index, but is outperforming the market index a good target? It is not a quantitative target to be measurable as market indexes fluctuate daily. I, personally, aim only for 10% growth a year. If at the end of the year, I see my portfolio grows 10%, I am pleased with that result no matter that S&P500 grows 50% the same year. To see if my stock portfolio grows in line with the 10% target, I choose to compare it to a saving account with the same interest. In this post, I will show you how to use a fictive saving account with daily compound interest as the target to benchmark a stock portfolio.

Target Saving Account With 15% annual compound interest

Idea

All investors want to see their money grow over time. It is exactly what is offered by a saving account. If we deposit money in a saving account, that money will only grow even with a very low-interest rate. But nobody forbids us to aim for a higher interest rate, for example, 10% per year. We might not find any bank that proposes 10% per year for a saving account but we can use that imaginative saving account to indicate the target that we want to achieve with the stock portfolio. To make the target challenging, the interest in that imaginative saving account is compounded daily. Daily compound interest means the interest generated today is immediately used to generate interest for tomorrow and so on.

Computation

To implement this idea, we will extract all DEPOSIT and WITHDRAW transactions of the stock portfolio and apply them to the target saving account with daily compound interest. Each DEPOSIT (WITHDRAW) transaction will generate interest from the next day.

For example, the first table below shows the transactions of our stock portfolio until 05/01/2018. The second table below is the evolution of the target saving account until 08/01/2018. In this example, the target saving account has 10% annual interest, which means 10 / 365 = 0.0274% daily compound interest.

Sample transactions
Saving account with 10% annual compound interest

Let's go through each date to understand the computation:

  • As we apply only DEPOSIT/WITHDRAW transactions to the target saving account, any BUY/SELL/DIVIDEND transaction will be ignored.
  • On 27/12/2017, we deposited 180 euros for the first time. As the deposit generates interest from the next day, we had so 0 euros of interest on the first day. As a result, the invested and saving balance were both 180 euros.
  • On 28/12/2017, we deposited 1000 euros. With 0.0274% daily interest, the 180 euros previous saving balance generated 0.049 euros saving interest. We had so 180 euros previous saving balance, 1000 euros cash flow, and 0.049 euros saving interest. Totally, it made up 1180.049 euros as a new saving balance.
  • On 29/12/2017, we deposited 0 euros. With 0.0274% daily interest, the 1180.049 euros previous saving balance generated 0.323 euros saving interest. We had so 1180.049 euros previous saving balance, 0 euros cash flow, and 0.323 euros saving interest. Totally, it made up 1180.373 euros as a new saving balance.
  • On 30/12/2017, we deposited 0 euros. With 0.0274% daily interest, the 1180.373 euros previous saving balance generated 0.323 euros saving interest. We had so 1180.373 euros previous saving balance, 0 euros cash flow, and 0.323 euros saving interest. Totally, it made up 1180.696 euros as a new saving balance.
  • On 03/01/2018, we deposited 1000 euros. With 0.0274% daily interest, the 1181.667 euros previous saving balance generated 0.324 euros saving interest. We had so 1181.667 euros previous saving balance, 1000 euros cash flow, and 0.324 euros saving interest. Totally, it made up 2181.990 euros as a new saving balance.
  • On 04/01/2018, we deposited 0 euros. With 0.0274% daily interest, the 2181.990 euros previous saving balance generated 0.598 euros saving interest. We had so 2181.990 euros previous saving balance, 0 euros cash flow, and 0.598 euros saving interest. Totally, it made up 2182.588 euros as a new saving balance.

The target saving account's evolution is computed easily with LION stock portfolio tracker.

Visualization

After defining the target, we need to keep the stock portfolio on track with that target. To do so, a simple thing we can do is to plot the evolution of the stock portfolio and the target saving account on the same time series chart. As shown in the LION stock portfolio tracker:

  • On one chart, we can plot the Invested, the Portfolio Value, and the Saving Balance.
  • On another chart, we can plot the Portfolio Gain and the Saving Gain.

As we can see in the below 3 examples:

  • The Saving Balance line is always above the Invested line. If the Portfolio Value line is above the Invested line, the stock portfolio is generating money. If the Portfolio Value line is above the Saving Balance, the stock portfolio is on track with the target.
  • The Saving Gain is always above the 0 line and grows gradually thanks to daily compound interest. If the Portfolio Gain line is above the Saving Gain line, the stock portfolio is on track with the target.

Evolution of target saving account with 5% annual compound interest

Target Saving Account With 5% annual compound interest

Evolution of target saving account with 10% annual compound interest

Target Saving Account With 10% annual compound interest

Evolution of target saving account with 15% annual compound interest

Target Saving Account With 15% annual compound interest

Conclusion

By using Google Sheets, Apps Script, and Google Data Studio, we can evaluate the stock portfolio's performance vs a target saving account with compound interest. We have seen the significance of compound interest when it is computed daily. On a time series chart, we can identify when the portfolio loses track of the target saving account and hence make adjustments in investment strategy to improve the performance.

If you find this post interesting, please do share it! Thank you!

Disclaimer

The post is only for informational purposes and not for trading purposes or financial advice.

Comments

Popular posts from this blog

Create personal stock portfolio tracker with Google Sheets and Google Data Studio

I have been investing in the stock market for a while. I was looking for a software tool that could help me better manage my portfolio, but, could not find one that satisfied my needs. One day, I discovered that the Google Sheets application has a built-in function called GOOGLEFINANCE which fetches current or historical prices of stocks into spreadsheets. So I thought it is totally possible to build my own personal portfolio tracker with Google Sheets. I can register my transactions in a sheet and use the pivot table, built-in functions such as GOOGLEFINANCE, and Apps Script to automate the computation for daily evolutions of my portfolio as well as the current position for each stock in my portfolio. I then drew some sort of charts within the spreadsheet to have some visual ideas of my portfolio. However, I quickly found it inconvenient to have the charts overlapped the table and to switch back and forth among sheets in the spreadsheet. That's when I came to know the existenc

Stock Portfolio Tracker Dashboard With Google Data Studio

In the series of building personal stock portfolio tracker, we have learned how to use Google Sheets to register transactions . We have then used the pivot table and GOOGLEFINANCE function to compute the latest position of the stock portfolio . We have made a step further to use Apps Scripts to compute automatically and daily the stock portfolio's evolution . However, after all, we have several tables of data as the result which do not tell any story yet. We need to present those data in graphs to understand the portfolio's performance and make improvements accordingly. We can effectively plot graphs in different aspects directly in Google Sheets as it provides many charting tools. However, in my experience, having charts and data in the same spreadsheet is not very convenient because charts and tables tend to overlap each other and of lack of interactivity. We should have a dedicated dashboard to have an overview of the stock portfolio and we can do it greatly with Google Data

Demo stock portfolio tracker with Google Sheets

As explained in the post Create personal stock portfolio tracker with Google Sheets and Google Data Studio , a personal stock portfolio tracker consists of 2 main elements: a spreadsheet in Google Sheets and an interactive dashboard in Google Data Studio. You can take a look at the sample spreadsheet below to have an idea of how the data is organized and related. It is possible to make a copy of the spreadsheet to study it thoroughly. Make a copy Note Disclaimer Make a copy Click here to make a copy Note To better understand the overall concept, please check out this post Create personal stock portfolio tracker with Google Sheets and Google Data Studio . Disclaimer The post is only for informational purposes and not for trading purposes or financial advice.

Monitor stock portfolio with Google Sheets (Pivot table and GOOGLEFINANCE function)

As an investor, it is important to know the latest state of the stock portfolio. We need to know what stocks currently owned in the portfolio, how many shares for each one, how much dividend or gain contributed so far by each stock, etc. As we have registered stock transactions in a spreadsheet with Google Sheets, we can easily have the latest update from the stock portfolio by using pivot tables and GOOGLEFINANCE function. Use a pivot table to group transactions by symbols Configure the pivot table Positions Use GOOGLEFINANCE function to get real-time information for stocks Conditional formatting columns Demo Note References Disclaimer Use a pivot table to group transactions by symbols The pivot table helps to see relationships between data points. To see how each stock contributes to the portfolio, we will create a pivot table that originated from the Transactions sheet. Select the Transactions sheet. Select the 5 columns A:E . In the menu at the top, click Dat