Regular Assets after first year
To better understand regular asset calculations, I created the simplest possible profile.
Assets and Saving = $1,000,000 Mutual Funds
Assumptions: Nominal Rate of Return on Regular Assets = 6%
Assumptions: Inflation = 3.5%
Everything else in the profile is at the default or $0.
After running the report (non-Monte Carlo), the Regular Assets tab for the first year shows:
Total Income = $25,000
Spending = $44,186
Taxes = $19,054
Savings = ($38,239)
Regular Assets = $996,761
Here's what I think is weird...
I starting out with $1M. It tells me my savings went down by $38239 in the first year. I would have guessed that my regular assets would be 1M-38239 = $961,761 but the result above is 996,761.
Seems the difference is that it's added inflation to the $1M assets I started with BEFORE doing the first year's computation (1M*1.035)-38239=996761 which matches the report).
The first year is the only year this happens. For every other year in the table, it works as I would have expected - the previous year's regular assets minus this years savings equals this year's regular assets.
Why is inflation added in BEFORE the first year results???
RSS
Never-mind. I can see that this question has been answered a couple of times. The best answer is here
http://www.esplanner.com/forum/why-are-assetaccount-entries-escalated-in...
Although I'm not sure I agree with the way it's handled, at least I understand.
It's a question of consistency. We always report in real dollars, end of year assets, which means that we have to GROW the assets in nominal terms, then back out the inflation, then report them. Basically at 6% nominal interest, $1M at end of year "last" year (beginning of year "this" year) turns into $1.03M at the end of this year.
Best,
Dick Munroe