How to use "discount rate" to make common life decisions

Original link: How to use the "discount rate" to make common life decisions-Zero | Wu Yukun's personal homepage, 2020022, go to the website to share.

I forgot when I first contacted the concepts of discount rate and present value. I was deeply impressed by a course of Khan Academy, which vividly described what is the discount rate, what is the present value, and how to compare the funds in different years.

Later, when I really met relevant decisions in my life, I unconsciously thought of the concept of "present value" and made a correct judgment accordingly.

One thing worth recording is that in the second half of 19, my family was almost fooled into handling the "discount loan" business of Sino-German housing. Fortunately, after my detailed analysis, I stopped my business, although I still have some contradictions with my family. One of the lessons is that I should be skeptical from the beginning, instead of finding out that this business is a pit at the end, which has paid a lot of sunk costs and affected my family's mood. See Commercial Society Series for details: Is Sino-German Housing Savings Loan a Pit?

When I arrived at 19 and 12, I saw an article recommending "high-yield annuity insurance" on my friend's WeChat official account. My first judgment at that time was "Is it the same as the Sino-German housing discount loan?" "

Today, I took out the excel table that analyzed the interest and loan between China and Germany before, and put an annuity insurance income and expenditure in the article to calculate the present value of expenditure and income at different discount rates to see if my current financial income is higher than this business.

Business core content:

I am curious about what this "internal rate of return" of 4.3% means and how it is calculated. Although I don't know the internal rate of return, I know that I use the "present value comparison method", which is definitely the correct way to judge, so I pull out an excel table and calculate the present value of income and expenditure without discount rate. The results are as follows.

If the discount rate is modified, the following table is obtained:

In other words, if my discount rate (wealth management income) is 3.2%, then the 6.5438 million yuan I invested in the first ten years and the 2.98 million yuan I received later are exactly the same price, and I will not make a profit or lose money.

So whether this business is worth it depends on your discount rate. If the average annual rate of return exceeds 3.2%, it is naturally unnecessary to handle it.

Of course, if we consider the reasons of behavioral economics, it is more complicated to deal with. For example, annuity insurance is a kind of compulsory savings, which is also a reasonable phenomenon mentioned in the book Boosting.

After that, I looked up what is the "internal rate of return" and found that this is the critical interest rate of "the present value of expenditure = the present value of income" I was looking for. Zhihu's analysis on a pile of tall buildings just emphasized this point.

Briefly explain why the present value tool is used.

There is a very important principle in analyzing problems: the essence of analysis is comparison! I like this sentence very much. By the same token, when making economic decisions, especially when trying to figure out whether the money you spend is worth it, the key is "who to compare with". Can you earn 654.38+00,000 after spending 654.38+00,000?

In the traditional society, everyone can understand that the original is to pay in one hand and deliver in the other, because the comparison is the present.

However, the financial society allows us to borrow money now and pay it back later (buying a house, buying a car or even a mobile phone), or lend it to others now and get it back later (such as the annuity insurance here). At the same time, the simple problem becomes complicated.

How to simplify complex problems and how to "compare" money at different times are the concepts and tools of discount rate and discount.

Well, the conclusion is

Remarks:

2065438+2009 65438+2009 I saw the related official WeChat account article and wanted to write an analysis article to deepen my understanding and clarify this business. It was not until February 5, 2020 that I really started writing this article.

This business is analyzed by excel first, and then the calculation results of excel are copied to mweb (automatically converted to markdown format? ), excel and writing, the total cost of this paper is * * *1.5h.

2020025 23:00