Have you ever thought it’d be nice to have an Excel formula to calculate the CAGR on your investments that move more unpredictably rather than in a perfectly straight line? Contributor Andy Shuler has just created a new CAGR formula Excel spreadsheet to help investors plan their future—even when things don’t go exactly according to plan.

If you’re an absolute beginner, Andy’s written a great intro into everything about CAGR and why you’d want to calculate it as an investor.

If you’re just looking for the Excel CAGR formula, then go ahead and scroll down to where the big colorful pictures are (and be sure to download the tool for free for yourself!).

Introduction to Compounding and CAGR

CAGR.  What the heck is CAGR?  Well, it’s an acronym for Compound Annual Growth Rate, or in other words, it’s the rate that something compounds on an annual basis.  Almost always, this will be in reference to money, but that’s not the only time this applies.  Let’s get down to some Compounding 101…

You might’ve heard people say, “I compounded the problem by trying to make things right.”  What they are actually saying is that they took a bad situation and made that situation even worse.  Fortunately for all of us, not all examples of compounding are about making situations worse. 

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Announcer:                        00:00                     You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave:                                    00:36                     All right folks, we’ll welcome to the Investing for Beginners podcast. This is episode 112 tonight. Andrew and I are going to dissect it listener question that we got from Clinton. It’s fantastic. He has a lot of great points in there, and Andrew and I wanted to just kind of walk through each section of those and take some time to answer those questions, and so I’m going to go ahead and start reading.

Dave:                                    00:58                     So first, a dear Andrew, two weeks ago, I started doing some serious research on investing in the stock market. I have next to no investment slash finance background. I’m 33 years old and married, working in health care with my first child. On the way, I came across your podcast with Dave on Spotify, and ever since I’ve been listening to two episodes a day from the beginning. I have a 40 minute each way commute to work. I am very intrigued by value investing. So I decided to purchase your e-letter letter to follow along with your $150 a month portfolio. So the first question, I am going to spend $1,000 a month in my invest in, in my invest in my account for the next 20 months to have around 20 positions and my wife and I will put $200 a month into the IRA account. I purchased the stocks of number and number blanket blank does Zack is a premium picks from the leather.

Dave:                                    01:58                     Okay, perfect. We’ll blank that out. So I researched and thinking about investing in the small dogs of the Dow plan also at the end of the year while following your eletter advice, what is your opinion on the small dogs of the Dow Investment Strategy? Andrew, what are your thoughts, your thoughts on that?

Have you started your home savings account and aren’t what to do with the funds? Do you feel like you’re not doing enough with that down payment fund and wonder what move is the best one? Let contributor Andy Shuler’s home buying story inspire you and give you wisdom on what to do.

BACKSTORY: Less than a year ago, my wife and I found ourselves in a situation where we were moving to a new city and were in the housing market.  I was expecting to move in March of 2019, but was offered a really good, new opportunity in late October that I couldn’t pass down. 

While both my wife and I were excited about moving and the excitement that going to a new place brings, I was also extremely stressed out about money.

You see, in my eyes, I was operating under the assumption that we weren’t going to move until March.  I thought I still have 4-5 more months of saving and really increasing the amount that we could put down on a house.  It turns out that we didn’t have that time, so we had to make do as best as we could. 

Luckily, we had been financially planning for a move for quite some time, knowing that my company will typically move employees every 2-3 years, so we were planning for the next move before we even unpacked our boxes in Chicago. 

This was the first time that we were buying a house instead of renting, and really had absolutely no idea where to begin. 

I spent countless hours (like easily in double digits) researching all of the different types of down payment options to make sure that we found the best way to maximize our home savings by making sure that we selected the right down payment option.

Like I mentioned, we had been planning to buy a house for a good while.  While living in Chicago, we got engaged and married, both of which are extremely expensive, to get a ring and to pay for a wedding.  We also, as I mentioned, were living in Chicago, which is expensive in itself. 

So, while we had been saving for a while, it wasn’t a shoe-in that we were just going to put 20% down.  I really spent a lot of time budgeting, saving, and researching to make sure we were optimizing our home savings. 

First off, once extra money was leftover from the budget, that all went into our “down payment fund.”  But what should we do with that money that’s saved for our next home?

There’s various compound interest calculators out there, but not a specific 401k match calculator that’s easily manipulable to quickly show how different contributions and employers matches can compound over the long term. Contributor Andy Shuler presents his Excel version here.

Earlier this week, I made a Compound Interest post in the Investing Facebook group and had a follower of the group, Joshua Glenn, ask me if there was a 401K Compound Interest calculator… I was somewhat dumbfounded. 

Out of all of the compound interest calculators that I had seen, I hadn’t seen one that allowed you the ability to put a certain percentage of your income to determine your contribution amount, as well as include an employer match, and even give you the ability to adjust for potential future raises as well, and for some reason I never even questioned it. 

In the investing community, we often almost glance over 401Ks. 

It’s like, max out your company match, but then go invest in companies with dividends, max out your Roth IRA, etc., etc.  And yes, I agree with those things, but the first thing I said was MAX OUT YOUR COMPANY MATCH! 

We never focus on that – so I wanted to, thanks to the great question on the Facebook page. 

The Importance of Calculating the Compound Interest from a 401k

For most people, I think that investing in their 401K is the most common form of a retirement plan that they might have, and I think that’s because it’s easier and also because their company might have a company match. 

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Announcer:                        00:00                     You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern, to decode industry jargon, silence confusion and help you overcome emotions by looking at the numbers. Your path to financial freedom starts now.

Dave:                                    00:36                     All right folks, we’ll welcome to the Investing for Beginners podcast. This is episode 111, Tonight Andrew and I are going to talk about some listeners, questions that we got. Then we’re going to focus a little bit on investing in our later years, i.e., our 50s or early sixties that kind of timeframe. We’ll talk a little bit about some thoughts we have on that related to some of the questions that we got recently about this particular subject. So I’m going to go ahead and start and read the first question. The first question is, Hi Andrew, my question is investing in your fifties I’m in the middle of a divorce of 31 years. We have accumulated a lot of wealth. So my question is, what would be the wisest strategy? I will have substantial alimony. Have worked outside the home for 29 years. So assuming I won’t need all the equalization payment, where would you suggest I start? I feel like I’ve lost much of the compounding times. So now what? I’m 58 and healthy to hope to see my eighties. I’d be thrilled to hear from you directly or cover the topic in an email for the broader crowd to work. I can’t be the only one in this situation. Thanks.

Dave:                                    01:42                     When though when you’re not, so as somebody who is in your age range, I’m 52, so I’m the older one or the crowd here between Andrew and I and some would maybe sometimes I might be the wiser one, but I am not so sure about that always. , so I guess, I guess the first thing is I, my condolences about the divorce. I’m sure that could not be, easy to go through and I’m sure you have a bazillion questions going on. So as someone who’s gone through a divorce myself, I, I feel for ESL, it’s not an easy situation to go through.

Would you rather buy low, sell high… or buy high, sell low? Obviously we’d all like to buy low and sell high, but sometimes that desire makes us believe that doing the opposite is so wrong. Well today, contributor Andy Shuler wants to debunk that idea, with real data from the S&P 500 showing why.

I think you’ll find this very interesting, and hopefully it will motivate many investors out there to just take action… and keep the right mindset: time in the market is better than timing the market…

Buy low, sell high – the most common stock buying advice ever.  It’s sooooo easy, right?  Wrong. 

How do you know when you’re at the high point?  If you buy a stock at $100 and it goes to $150, is that the high point where you should sell?  If you sell, it will probably go to $200.  If you don’t sell, it will probably come back to $100.  It’s so tough to tell when the right time to sell is, and it’s just as hard to find out when to buy.  Depressed yet?  Don’t be.  I have some good news.

You can buy high and sell low, and still make a ton of money!

“Andy, I think you said that backwards.”  Nope, I didn’t.  I meant what I said.  Don’t believe me?  That’s fine.  The proof is in the pudding. 

Do you know if you’re being overcharged at the grocery store? With the advent of online shopping, there’s things you probably buy at the grocery store that you can now buy on Amazon, to save money on your budget. Contributor Andy Shuler takes a look at 11 commonly bought grocery list items and how the prices stack up vs. a grocery store like Kroger.

In the past I have written about how I used to literally go into a grocery store, look at the price of an item, and then look for that same item on my Amazon app on my phone, and purchase it whichever way was cheaper. 

While this wasn’t always Amazon, more often than not, it was.  A lot of times this involved buying in bulk, but who cares as long as you have the room to store it.  I still do this frequently, and the fact that it’s delivered is an extra bonus. 

I had an old boss that told me that grocery shopping is the most inefficient task ever.  Think about it:

1. Find Grocery List Item
2. Put Item in Grocery Cart
3. Take Item out of Cart to have scanned
4. Put item back in cart
5. Take Item out of cart to put in car
6. Take Item out of car

Or, you can do this:

1. Find Grocery List item on Amazon App and purchase
2. Open box when it’s delivered

One of these options seems quite a bit easier… along with getting the potential savings. 

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Announcer:                        00:00                     You’re tuned in to the Investing for Beginners podcast. Finally, step by step premi investment guidance for beginners, led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion and help you overcome emotions by looking at the nbers, your path to financial freedom starts now

New Speaker:                   00:36                     Welcome to the Investing for Beginners podcast. I am Andrew Sather; we have another great interview for you today. Dave’s taking the day off again. Today we have Tobias Carlisle. He has done a ton of stuff in the online space, the investing space and made some great contributions to the value investing world as well. So with that, Tobias, I love to dig into all the stuff you’ve got going on, but thanks for joining us today.

Tobias:                                  01:05                     Hey, thanks for the very kind introduction, Andrew. Appreciate it.

Andrew:                              01:09                     Yeah, so I guess first things first, I’m just going to like dive right in and then maybe we can go over your background a little bit later. , just the top of the thing that comes to my mind cause I was listening to your book acquires multiple, which is a fantastic book by the way. For anybody, basically. We’ve mentioned your book several times on our show, but I think to cliff notes summary. It’s like I’m taking Joel Greenblatt’s ideas and adding an extra component to it and having a ton of backtesting research and all whole lot more than I’m not giving it full justice. But as I was listening to it, this huge thing that comes up as a theme over and over again is this idea of mean reversion. And I think it’s a fantastic way to kind of start a discussion about some of the things when you talk about value investing then that’s something that I don’t think is a term that gets presented to beginners a lot. So can you talk about what mean or diversion is and kind of how that applies to the stock market?

Tobias:                                  02:16                     Yeah, sure. I’m happy to do that. So there’s, there’s, there are lots of different main reversions. We’re not necessarily talking about mathematics law of large numbers. We’re talking here in a very specific sense about the stock market. And, if you’re a value investor, your expectation is that the, there are companies that are undervalued. There are companies that are overvalued in their companies that are what we might call fairly valued. And the companies that are undervalued and overvalued, we’ll at some stage in the future go back to being fairly valued. And it’s that path from being undervalued or overvalued to fairly valued. That is main reversion. So that’s one example of it. It occurs not only in securities prices, in stock markets, in economics, in GDP, it’s, but it’s also everywhere. But it also occurs in the underlying businesses. So businesses have a cycle, and sometimes they’re doing very well.

The Return on Equity formula (ROE) is an important metric for judging the profitability of a company and how efficiently management is using the equity that shareholders have invested in the business.

However, having a high ROE ratio does not necessarily make a company a good investment. As always with investing, it comes down to price.

Sadly, the return on equity formula as calculated from financial statement numbers has nothing to do with price.

The method I present in this blog post, which I call Investor’s Adjusted ROE, is my personal favorite approach to value investing with ratios. It shows that a good deal can be approximated by combining some readily available metrics.

This is a guest contribution by Cameron Smith.

Guest bio: Cameron Smith is a CPA, CMA (Chartered Professional Accountant, Certified Management Accountant) from Toronto, Canada.

Cameron has an Honors Bachelor of Business Administration degree from Western University’s Ivey Business School where he had the opportunity to be taught value investing at the university’s Ben Graham Centre for Value Investing and to meet Warren Buffett in 2012.

On the side of his career in corporate finance, Cameron maintains his passion for value investing through being an active author and contributor on Seeking Alpha (author page: https://seekingalpha.com/author/cameron-smith#regular_articles).

Combining ROE with the P/B Ratio

We can make the profitability ratio, ROE, very meaningful to investors by combining it with a valuation metric in order to make it show the approximate earnings yield that an investor could expect to make on their own equity investment at the current market price.

Bit of a big sentence I know… but I will add some calculus for all those visual learners.

The Return on Equity formula, for a quick refresh and to start adding in some formulas to play around with, is calculated as follows below: