Package 'R4GoodPersonalFinances'

Calculate optimal risky asset allocation

Description

Calculates the optimal allocation to the risky asset using the Merton Share formula.

Usage

calc_optimal_risky_asset_allocation(
  risky_asset_return_mean,
  risky_asset_return_sd,
  safe_asset_return,
  risk_aversion
)

Arguments

risky_asset_return_mean	A numeric. The expected (average) yearly return of the risky asset.
risky_asset_return_sd	A numeric. The standard deviation of the yearly returns of the risky asset.
safe_asset_return	A numeric. The expected yearly return of the safe asset.
risk_aversion	A numeric. The risk aversion coefficient.

Details

Can be used to calculate the optimal allocation to the risky asset for vectors of inputs.

Value

A numeric. The optimal allocation to the risky asset. In case of NaN() (because of division by zero) the optimal allocation to the risky asset is set to 0.

See Also

• How to Determine Our Optimal Asset Allocation?

• Haghani V., White J. (2023) "The Missing Billionaires: A Guide to Better Financial Decisions." ISBN:978-1-119-74791-8.

Examples

calc_optimal_risky_asset_allocation(
  risky_asset_return_mean = 0.05,
  risky_asset_return_sd   = 0.15,
  safe_asset_return       = 0.02,
  risk_aversion           = 2
)

calc_optimal_risky_asset_allocation(
  risky_asset_return_mean = c(0.05, 0.06),
  risky_asset_return_sd   = c(0.15, 0.16),
  safe_asset_return       = 0.02,
  risk_aversion           = 2
)

---

Calculate purchasing power

Description

Calculates changes in purchasing power over time, taking into account the real interest rate.

Usage

calc_purchasing_power(x, years, real_interest_rate)

Arguments

x	A numeric. The initial amount of money.
years	A numeric. The number of years.
real_interest_rate	A numeric. The yearly real interest rate.

Details

The real interest rate is the interest rate after inflation. If negative (e.g. equal to the average yearly inflation rate) it can show diminishing purchasing power over time. If positive, it can show increasing purchasing power over time, and effect of compounding interest on the purchasing power.

Value

A numeric. The purchasing power.

See Also

• How to Determine Our Optimal Asset Allocation?

Examples

calc_purchasing_power(x = 10, years = 30, real_interest_rate = -0.02)
calc_purchasing_power(x = 10, years = 30, real_interest_rate = 0.02)

---

Calculate risk adjusted return

Description

Calculates the risk adjusted return for portfolio of given allocation to the risky asset.

Usage

calc_risk_adjusted_return(
  safe_asset_return,
  risky_asset_return_mean,
  risky_asset_allocation,
  risky_asset_return_sd = NULL,
  risk_aversion = NULL
)

Arguments

safe_asset_return	A numeric. The expected yearly return of the safe asset.
risky_asset_return_mean	A numeric. The expected (average) yearly return of the risky asset.
risky_asset_allocation	A numeric. The allocation to the risky asset. Could be a vector. If it is the optimal allocation then parameters risky_asset_return_sd and risk_aversion can be omitted.
risky_asset_return_sd	A numeric. The standard deviation of the yearly returns of the risky asset.
risk_aversion	A numeric. The risk aversion coefficient.

Value

A numeric. The risk adjusted return.

See Also

• How to Determine Our Optimal Asset Allocation?

• Haghani V., White J. (2023) "The Missing Billionaires: A Guide to Better Financial Decisions." ISBN:978-1-119-74791-8.

Examples

calc_risk_adjusted_return(
  safe_asset_return = 0.02,
  risky_asset_return_mean = 0.04,
  risky_asset_return_sd = 0.15,
  risky_asset_allocation = 0.5,
  risk_aversion = 2
)

calc_risk_adjusted_return(
  safe_asset_return = 0.02,
  risky_asset_return_mean = 0.04,
  risky_asset_allocation = c(0.25, 0.5, 0.75),
  risky_asset_return_sd = 0.15,
  risk_aversion = 2
)

---

Plotting changes to the purchasing power over time

Description

Plots the effect of real interest rates (positive or negative) on the purchasing power of savings over the span of 50 years (default).

Usage

plot_purchasing_power(
  x,
  real_interest_rate,
  years = 50,
  legend_title = "Real interest rate",
  seed = NA
)

Arguments

x	A numeric. The initial amount of money.
real_interest_rate	A numeric. The yearly real interest rate.
years	A numeric. The number of years.
legend_title	A character.
seed	A numeric. Seed passed to geom_label_repel().

Value

A ggplot2::ggplot() object.

See Also

• How to Determine Our Optimal Asset Allocation?

Examples

plot_purchasing_power(
  x = 10,
  real_interest_rate = seq(-0.02, 0.04, by = 0.02)
)

---

Plotting risk adjusted returns

Description

Plots the risk adjusted returns for portfolios of various allocations to the risky asset.

Usage

plot_risk_adjusted_returns(
  safe_asset_return,
  risky_asset_return_mean,
  risky_asset_return_sd,
  risk_aversion = 2,
  current_risky_asset_allocation = NULL
)

Arguments

safe_asset_return	A numeric. The expected yearly return of the safe asset.
risky_asset_return_mean	A numeric. The expected (average) yearly return of the risky asset.
risky_asset_return_sd	A numeric. The standard deviation of the yearly returns of the risky asset.
risk_aversion	A numeric. The risk aversion coefficient.
current_risky_asset_allocation	A numeric. The current allocation to the risky asset. For comparison with the optimal allocation.

Value

A ggplot2::ggplot() object.

See Also

• How to Determine Our Optimal Asset Allocation?

• Haghani V., White J. (2023) "The Missing Billionaires: A Guide to Better Financial Decisions." ISBN:978-1-119-74791-8.

Examples

plot_risk_adjusted_returns(
  safe_asset_return              = 0.02,
  risky_asset_return_mean        = 0.04,
  risky_asset_return_sd          = 0.15,
  risk_aversion                  = 2,
  current_risky_asset_allocation = 0.8
)

---

Printing currency values or percentages

Description

Wrapper functions for printing nicely formatted values.

Usage

print_currency(
  x,
  suffix = "",
  big.mark = ",",
  accuracy = NULL,
  prefix = NULL,
  ...
)

print_percent(x, accuracy = 0.1, ...)

Arguments

x	A numeric vector
big.mark	Character used between every 3 digits to separate thousands.
accuracy	A number to round to. Use (e.g.) 0.01 to show 2 decimal places of precision. If NULL, the default, uses a heuristic that should ensure breaks have the minimum number of digits needed to show the difference between adjacent values. Applied to rescaled data.
prefix, suffix	Symbols to display before and after value.
...	Other arguments passed on to base::format().

See Also

scales::dollar()

scales::percent()

Examples

print_currency(2345678, suffix = " PLN")
print_percent(0.52366)

---

Run a package app

Description

Run a package app

Usage

run_app(
  which = c("risk-adjusted-returns", "purchasing-power"),
  res = 120,
  shinylive = FALSE
)

Arguments

which	A character. The name of the app to run. Currently available: risk-adjusted-returns - Plotting risk-adjusted returns for various allocations to the risky asset allows you to find the optimal allocation. purchasing-power - Plotting the effect of real interest rates (positive or negative) on the purchasing power of savings over time.
res	A numeric. The initial resolution of the plots.
shinylive	A logical. Whether to use shinylive for the app.

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