What is Present Value/Future Value?
With any asset, it will get more or less valuable over time (due to appreciation/depreciation and/or cash flow). Present Value is the value of that asset today. If you put 1000 dollars into an investment account, the present value of that account will be 1000 dollars. Future value is the value of that asset after a given time period has passed. If that investment account has an annualized rate of return of 5%, and you want to know what the value would be in 10 years. The value in 10 years is future value. In this case that 1000-dollar present value would have a 1628.89-dollar 10-year future value.
What is the Real Value of money?
Money has no value in of itself. It is only valuable for what it can buy. If you have one dollar in your pocket and a candy bar costs one dollar than your real value of your money is one candy bar. If the cost of the candy bar decreases to 50 cents, your money’s real value is now 2 candy bars. Even though the nominal value of your cash didn’t increase, the purchasing power (real value) did. Real value is often used in connection with inflation. As inflation occurs, the real value of a dollar decreases. It can buy less stuff.
Relevance of Present Value/Future Value and Real Value
These concepts are used when calculating the investment returns on an asset over time and when comparing multiple assets with each other.
|Rate||Assets Under Management|
|1.00%||Between $125,000 and $750,000|
|.85%||Between $750,000 and $1,250,000|
|.80%||Between $1,250,000 and $1,750,000|
|.75%||Between $1,750,000 and $2,500,000|
|.70%||Between $2,500,000 and $3,250,000|
|.65%||Between $3,250,000 and $4,250,000|
A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.
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Questions for the comments
Did my explanation make sense? Do you agree or disagree with what I said?