64) Why Some Investments Are For Longer Term.
We always wanted to have high returns and No Risk. We also want the return to be fast. There is also another factor to consider before investing. You also need to consider the initial service charge.
The Initial Service Charge affects the overall Total Return, especially during shorter investment period.
Normally a higher return investment has higher risk and also higher initial service charge.
Let’s compare the different Initial Service Charges for different investments.
Assumptions used:
a) Returns are same for 5 years.
b) Calculation used the Simple Return methods without the Compounding Return calculation.
c) GST and other charges are excluded for simplicity.
Investment A (Assume 3% return yearly):
a) Initial Charge: 0% (Zero charge)
b) After 1 Year: 3% (0% + 3%)
c) After 2 Years: 6% (3% + 3%)
d) After 3 Years: 9% (6% + 3%)
e) After 4 Years: 12% (9% + 3%)
f) After 5 Years: 15% (12% + 3%)
Investment B (Assume 7% return yearly):
a) Initial Charge: -5.5% (Higher Service charge)
b) After 1 Year: 1.5% (-5.5% + 7%)
c) After 2 Years: 8.5% (1.5% + 7%)
d) After 3 Years: 15.5% (8.5% + 7%)
e) After 4 Years: 22.5% (15.5% + 7%)
f) After 5 Years: 29.5% (22.5% + 7%)
Investment C (Assume 4% return yearly):
a) Initial Charge: -1% (Lower Service charge)
b) After 1 Year: 3% (-1% + 4%)
c) After 2 Years: 7% (3% + 4%)
d) After 3 Years: 11% (7% + 4%)
e) After 4 Years: 15% (11% + 4%)
f) After 5 Years: 19% (15% + 4%)
Actual returns varies for different investment objectives, asset allocations, risk level, market conditions and different time horizons.
The graph looks like below:
In conclusion, you need a longer time horizon for certain investments to “recover” the initial service charge.
Zero service charge may not be suitable for longer period.
For shorter period, better to invest in lower service charge investment.
For longer period, better to invest in higher service charge investment.
Know the risk and return of your investments within the time horizon available. Select the investments that suit your requirement.
Assumptions used:
a) Returns are same for 5 years.
b) Calculation used the Simple Return methods without the Compounding Return calculation.
c) GST and other charges are excluded for simplicity.
Investment A (Assume 3% return yearly):
a) Initial Charge: 0% (Zero charge)
b) After 1 Year: 3% (0% + 3%)
c) After 2 Years: 6% (3% + 3%)
d) After 3 Years: 9% (6% + 3%)
e) After 4 Years: 12% (9% + 3%)
f) After 5 Years: 15% (12% + 3%)
Investment B (Assume 7% return yearly):
a) Initial Charge: -5.5% (Higher Service charge)
b) After 1 Year: 1.5% (-5.5% + 7%)
c) After 2 Years: 8.5% (1.5% + 7%)
d) After 3 Years: 15.5% (8.5% + 7%)
e) After 4 Years: 22.5% (15.5% + 7%)
f) After 5 Years: 29.5% (22.5% + 7%)
Investment C (Assume 4% return yearly):
a) Initial Charge: -1% (Lower Service charge)
b) After 1 Year: 3% (-1% + 4%)
c) After 2 Years: 7% (3% + 4%)
d) After 3 Years: 11% (7% + 4%)
e) After 4 Years: 15% (11% + 4%)
f) After 5 Years: 19% (15% + 4%)
Actual returns varies for different investment objectives, asset allocations, risk level, market conditions and different time horizons.
The graph looks like below:
In conclusion, you need a longer time horizon for certain investments to “recover” the initial service charge.
Zero service charge may not be suitable for longer period.
For shorter period, better to invest in lower service charge investment.
For longer period, better to invest in higher service charge investment.
Know the risk and return of your investments within the time horizon available. Select the investments that suit your requirement.
Please note that the above graphs
are for illustration purpose only. Past performance are not indication of
future performance.
Please be reminded and be aware that
all investments have risk. Do consult your professional investment and
financial consultants.
#highlevelinvestment
#highlevelrules
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