When it comes to investing, returns on investments (positive and negative) are generally expected to vary from year to year.

While market fluctuations are completely normal, this can make it difficult to measure how much you may potentially make when you are investing small amounts on a regular basis. This is further complicated with making withdrawals when you need the money, as Raiz lets you do. People also like to understand returns in a similar way to interest on a bank account.

This is where the comparable rate needs to be calculated using the internal rate of return (IRR) method.

Since inception, the average Raiz user has made 10.5% p.a. (including all fees except the $1.25 per month) – IRR – comparable rate. But we don’t know what the future may hold so this return cannot be relied on because of market risk going forward*.

Let’s look at two different market scenarios when opening an Raiz account.

You open an Raiz account with $100 and add a recurring $20 monthly deposit for the next 12 months. However, after 6 months you then decide to take $50 out of your Raiz account.

In the first scenario, the market goes up 20% in the first 6 months and then falls 10% for the remaining. This means you would have invested $220 in the first 6 months while the market was rising – taken $50 out – and invested the remaining with $120 recurring in a falling market.

In the second scenario, the market falls 10% in the first 6 months and then rallies 20% for the last 6 months. This mean you would have invested $220 in a falling market – taken out $50 – and invested the remaining with $120 recurring in a very strong rising market.

While both these markets finished at the end of the year on 10%, the return on your Raiz account will be completely different and will depend on how the market got there. In the first example, the comparable rate is 4.75% p.a. While in the second scenario the comparable rate is 16.4% p.a.

These two scenarios illustrate how the market gets there is important, hence the need to do an IRR calculation which takes into account when you made your investment and when you made your withdrawals to calculate a rate that is comparable to, for example, a bank account rate.

To learn more about IRR please visit Investopedia link here

*Please refer to the product disclosure statement and the additional information document to understand more about the markets risks that can affect your portfolio.

Important Information

The information on this website is general advice only.  This means it does not take into account any person’s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the Raiz product.

The information in this website is confidential. It must not be reproduced, distributed or disclosed to any other person. The information is based on assumptions or market conditions which change without notice. This will impact the accuracy of the information.

Under no circumstances is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz.  

Past return performance of the Raiz product should not be relied on for making a decision to invest in Raiz and is not a good predictor of future performance.