Quite often you can see, at first glance,advantageous offers that promise financial independence. These may include bank deposits and opportunities for investment portfolios. But is everything as profitable as advertising says? We will discuss this in the framework of the article, finding out what the nominal rate is and the real rate.
Interest rate
Но для начала поговорим про основу основ в этом business - interest rate. It displays the nominally benefit that a certain person can receive when investing in something. It should be noted that there are quite a few opportunities to lose your savings or the interest rate that a person should receive:
- Nebula of a written contract;
- Unforeseen situations (crisis of an enterprise or a banking institution, as a result of which it ceases to exist).
Therefore, it is necessary to study in great detail whatyou are going to invest. It should be remembered that the interest rate is often a reflection of the riskiness of the project under study. So, the safest are those that offer a level of return up to 20%. The high-risk group includes assets that promise up to 70% per annum. And all that is more than these indicators is a zone of danger, which should not be thrown into without a certain amount of experience. Now that there is a theoretical basis, we can talk about what the nominal rate and the real rate are.
The concept of nominal rates
Determine the nominal interest rate is verysimply, it means the meaning that is given to market assets and evaluates them without taking inflation into account. As an example, you can bring you, the reader, and the bank, which offers a deposit at 20% per annum. For example, you have 100 thousand rubles and you want to multiply them. Therefore, put in the bank for one year. And at the expiration of the term they took 120 thousand rubles. Your net profit is as much as 20,000.
But is it really so?Indeed, during this time, food, clothing, transportation could have significantly risen in price, and, say, not by 20, but by 30 or 50 percent. What to do in this case, to get a real picture of affairs? What do you still need to give preference when you can choose? What should be chosen as a guide for yourself: the nominal rate and the real rate or one of them?
Real bet
Here on such cases and there is suchindicator, as the real rate of return. It is noteworthy that it is quite easy to calculate. To do this, we should subtract the expected inflation rate from the nominal rate. Continuing the example given earlier, you can say this: you put 100 thousand rubles in a bank at 20% per annum. Inflation was only 10%. As a result, the net nominal profit will be 10 thousand rubles. And if you adjust their cost, then 9,000 of the purchase opportunity of last year.
This option allows you to receiveinsignificant, but profit. Now we can consider another situation in which inflation has already reached 50 percent. You do not need to be a genius of mathematics to understand that the situation is forcing you to look for some other way to save and increase your money. But all this has so far been in the style of a simple description. In economics, the so-called Fisher equation is used to calculate all this. Let's talk about him.
Fisher equation and its interpretation
Talk about the difference that they have a nominal rateand the real rate is possible only in cases of inflation or deflation. Let's look at why. For the first time the idea of the relationship of nominal and real rates with inflation was advanced by the economist Irving Fisher. In the form of a formula, it looks like this:
NS = PC + OTI
NA is the nominal rate of return;
OTI - the expected rate of inflation;
RS is a real bet.
The equation is used for the mathematical inventory of the Fisher effect. It sounds like this: the nominal interest rate always changes by an amount at which the real remains unchanged.
It may seem difficult, but now we will understandmore details. The fact is that when the expected inflation rate is 1%, the nominal value also grows by 1%. Therefore, it is impossible to create a high-quality investment decision-making process without taking into account the differences between the rates. Earlier, you just read about the thesis, and now you have mathematical proofs that everything described above is not just an invention, but, alas, a sad reality.
Conclusion
And what can be said in conclusion?Always having a choice, it is necessary to take a high-quality approach to choosing an investment project for yourself. It does not matter what it is: a bank deposit, participation in a mutual investment fund or something else. And to miscalculate future income or potential losses, always use economic tools. So, the nominal interest rate may give you a pretty good profit now, but when evaluating all the parameters it will turn out that not everything is so rosy. And the economic tools will help calculate which decision will be most profitable.
