**The Elterro Investment Plan.**

In our recent “First Thoughts” article about the Elterro online investment program, we introduced their investment plan in the following way:

For the investor, El-Terro offers a single — but very unique — investment plan. You can choose an investment amount of anywhere from $50 up to $25,000, as well as the term of the investment plan. The unique part of the investment plan is that during the first week you earn 1.1% per day; during the second you earn 1.2% per day; during the third you earn 1.3% per day, etc. all the way up to a maximum of 10 weeks when you will earn a full 2% per day. On top of this, it appears that your investment will be returned to you after the conclusion of the term (length) that you have chosen. I have not seen this type of investment plan before and it will be interesting to analyze it and compare it with other online investment programs we have encountered in the past.

Fortunately for the investor, the website contains a wonderful interactive calculator that also serves as an explanation of the investment program as well. To use it, you simply select an investment amount — anything from $50 to $25,000 — and the calculator will show you precisely how much you will earn per week. For example, if you choose the minimum investment amount of $50, you will see the following information for each of the 10 weeks of the investment plan:

Week Daily Rate Earnings

#1 1.1% $3.85

#2 1.2% $4.20

#3 1.3% $4.55

#4 1.4% $4.90

#5 1.5% $5.25

#6 1.6% $5.60

#7 1.7% $5.95

#8 1.8% $6.30

#9 1.9% $6.95

#10 2.0% $7.00

Next, you click on one of these entries to select the length of the term you would like to use. The calculator will then determine your “profit” and “profit margin.” These terms deserve some explanation. Suppose that you choose a six-week term. You will then see $78.35 listed as your “profit” and 156.7% listed as your “profit margin.” To understand what these terms mean, you should add the earnings for the first six weeks that are given in the listing. If you do this, you will get $28.35. Knowing that your investment will be returned to you at the end of the six-week period, this will be your NET profit. If you add this to your $50 investment amount, you will have your GROSS profit of $78.35 — which is what the calculator calls your “profit.” Next, divide $28.35 by your $50 investment amount and you will get the total NET interest that you earned. This is 56.7% (28.35/50 x 100). If you add 100% to this, in recognition of the fact that your investment is returned to you separately, you will get a total GROSS interest of 156.7% which is the “profit margin” given in the calculator. So, the calculator gives you GROSS values which, of course, includes your investment. What you are really interested in are NET values which we sometimes refer to as “pure” profit. There is nothing at all wrong with the calculator results. However, you are seeing GROSS results rather than NET results. Of course, GROSS results are a lot higher, the reason why the administrators of the program have chosen to give them!

I had to go through this little analysis a few times before I really digested it. Unless you’re a really good accountant, you might want to do the same thing for a number of different investment amounts and lengths of investment plan terms. It is really a very neat calculator and an equally clever investment plan.

**Analysis of the Elterro Investment Plan.**

As you might already expect, this investment plan will be tricky to analyze because there are so many variables that simultaneously come into play. When we analyze an investment plan, we typically determine two quantities: when it breaks even and the average daily net interest that it will pay you. To save ourselves from a case of insanity, we will let the calculator help us out in our analysis. We will find that this makes things fairly simple.

First let’s determine when the plan will break even. We’ll use the same $50 as an example. Referring to the calculator, select different terms for the plan and observe what happens to the “profit margins” which you will remember is your total GROSS interest. Since this includes your investment, when it hits 200%, you will have broken even. OK, if you do this, you will see that you will not break even until the 10^{th} week of the investment plan. In other words, no matter what length of plan you choose, you will not break even until it ends and your original investment is returned to you. However, if you choose the 10-week plan, you will finally have earned enough so that your returns will equal your investment (and then, of course, your original investment will be returned to you). If you try this little exercise, as you might expect, you get the same result no matter what your investment is. This is really very clever.

The determination of average daily net interest (DNI) is very simple if you take advantage of information given in the calculator. Remember, we stated that the term “profit margin” in the calculator is what we normally refer to as total GROSS interest. To determine total NET interest, you subtract 100% from this. To get DNI, you simply average that result out over the length of the plan by dividing by the number of days in the plan. For the specific example of the six-week plan we have been considering, the total Gross interest is 156.7% and the total NET interest is 56.7%. For the six-week plan, the number of days in the plan would be six times seven days per week, or 42 days (6 x 7). Dividing the total NET interest of 56.7% by 42, you get a DNI of 1.35%. If you choose other investment amounts in the calculator, you will see that, for the six-week investment term, the DNI will always be 1.35%.

Next, as a further example of how the El-Terro investment plan works, let’s check what the DNI will work out to be if an investor chooses the 10-week version of the plan. Again referring to the calculator and selecting the 10 week option, we see that the “profit margin” or total GROSS interest is 208.5%. Subtracting 100% from this because it includes your investment, you get a total NET interest of 108.5%. Finally, dividing this by 70 (the number of days in a ten-week investment plan, you get a DNI of 1.55%.

If you repeat all this for the 10 different length investment plans, here are the results you will get for their DNIs:

Weeks in Plan DNI

1 1.10%

2 1.15%

3 1.20%

4 1.25%

5 1.30%

6 1.35%

7 1.40%

8 1.45%

9 1.50%

10 1.55%

OK, we have struggled with a lot of arithmetic to arrive at this information. However, it is very important for the investor to know all this, as breakeven points and DNIs are extremely important measures of profitability, risk, and overall appeal of investment plans. We will discuss our results in Part 2 of this review when we will attempt to nail down the pros and cons of this very unique investment program. Please stand by. Part 2 should be ready in a few days.

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