105) Invest To Be A Millionaire

105) Invest Regularly To Be A Millionaire

Have you wondered how much and how long to invest to be a millionaire?
If you do not have a large amount now, you can invest regularly over a long period.

Below is a graph to show the different amounts needed from different starting age until age 60..

You can use Financial Calculators to calculate the monthly investment amount to be a millionaire.

For example: John, a 40 years old man, wants to be a millionaire by age 60. He expects his investment gives compounded return of 7% yearly. How much he should invest yearly?

Future Value: $1,000,000
Periods: 20 years (60yo - 40yo)
Annual Rate: 7%
Payment: $22,797 per year

Using the Financial calculator, John needs to invest $22,797 yearly for the next 20 years.

Let's compare how much you need to invest yearly at 7% annualized return to be a Millionaire when you retire at 60 years old.

The younger you start, the less is the yearly investment amount required.
In conclusion, to be a millionaire when you retire, you need to

start investing as soon as possible.

Time is your friend in growing your money.

104) Investment is more than about making money

104) Investment is more than about making money.

Investment is about preparing for your better future financially.

Have a purpose for your investment actions.

Without a purpose or objective, the investment is just a number.
There is no relationship between the number and you.

It has no real meaning. Is it too much, too little or just enough?
When do you need the money? The time factor gives you the urgency.
Do you still have a lot of time or you need it urgently?

How about the return rate? Do you expect high or low return rate?
High return rate usually comes with high risk. Can you accept the volatility?

Have the right considerations and understanding of your future financial goals. 

Then, you will be able to plan better and understand the factors affecting the investment.

The investment has become something suited to you personally.

Do consult your professional consultants on preparing the right investments for your needs.

103) Factors Affecting Investment Returns

103) Factors Affecting Investment Returns.

The amount of your investment depends on 3 factors:
1) Initial amount
2) Return rate
3) Time invested

The formula to calculate your future value of the invested amount is:

FV = PV (1+i)^n

where,
FV is the Future Value or the amount you get at the end of the investment period.
PV is the Present Value or the amount you invested in the beginning.
i is the return rate or interest rate of your investment.
n is the period or time you kept invested. Usually measured in years.

Note: ^  is the exponential symbol.

Calculation Example:

How much will $1000 be after 10 years with 8% annual returns? 

FV = PV (1+i)^n

          = 1000 (1+8%)^10
          = 1000 (1.08)^10
          = 1000 (2.15892)
          = 2158.92

Answer: $2158.92

To make the most money:
1) invest a lot of money in the beginning. High PV.
2) have a very high return rate. High i.
3) keep invested for a very long time. High n.

Now let's discuss the 3 factors one by one.

1) A lot of money.
It's great that you have a lot to start with. You must have heard the saying, Money makes more money. This is the formula.

2) High return.
It's great if you got very high return rate. However do remember about the saying,
High Return, High Risk. You must be able to accept the high risk. There is no investment giving high return and low risk. 

3) Long time.
Time is something that is available and given to one and all. Everyone has the same 24 hours.

If you only have little money, want to take medium risk with medium return, then you need more time to give you more money in the future.

In investment,

Time is your Best Friend.

So, do start to invest as early as possible and utilize the time that you have.

Returns from Different Unit Prices

http://highlevelrules.blogspot.my/2018/03/returns-from-different-unit-prices.html 

102) Investor Challenge # 10 - Guaranteed Return from Investment

102) Investor Challenge # 10 - Guaranteed Return From Investment

This is another major requirement from investors. Everybody wants an assurance that their money SURE to give a good return. Nobody wants to risk their hard earned money.

The "Guarantee" requirement in financial products is impossible to fulfill. Nobody can be certain about the future, let alone control the future investment returns. For a product to be guaranteed, there must be a guarantor.

The next question you should ask is,  

Who guarantees the guarantor?


Have you ever seen and study all the write ups and brochures about investments? Have you seen any claims of GUARANTEED RETURNS in any of them?

Even the banks do not publish the word GUARANTEE in their Savings and Fixed Deposits returns. The banks will publish a certain Return Rate, but the word "Guarantee" cannot be found. In Malaysia, we have the Perbadanan Insurans Deposit Malaysia (PIDM). This organization will protect your savings up to a certain amount for each account.

(Note: If you found any GUARANTEED RETURNS statement in any investment or bank products, please forward to me. I would love to see one.) 

101) Talent is developed, not born

101) Talent is developed, not born.

A story for those who don't believe that they have the talent to do anything.

You just have to focus in doing something and keep thinking and learning how to do it better. 

You see that most professional sports player spend their entire life doing what they love.

Have you watched the movies on the life of the footballers, Pele and Lionel Messi?

They spent their time playing football since very young and continue playing as much as they can.

You may say they are born talented to play football. But, you can see they eat, sleep and play football.

How about the other sports like gymnastics?
How about golf?

Same about doctors, surgeons, musicians and all other fields. 

Even your car mechanic who dropped out of school became very good at repairing cars. 

They learn and practice many years at repairing cars before become very good.

It is all about practicing whatever you do to be talented in it. 

No talent can be developed if you spend only 1 hour a week doing what you want to develop.

There is a research and report that you can develop any talent, provided you spend at least 10,000 hours working hard on it. Not just doing, but thinking, study, analyse and keep practicing.

For more info of the research, do your google and youtube search for "Talent is Overrated" by Geoff Colvin. 

Search this book at: Kinokuniya (MY)
Search this book at: Amazon.com (US)

Now, you are assured that you can be talented in whatever you want, provided you spend time, study, learn and practice the skill you want.

You Can Develop The Talent You Want.
Be Talented in Whatever You Want.
The Choice is Yours. 
Choose Wisely.

100) Investor Challenge # 9 - How Long To Stay Invested

100) Investor Challenge # 9 - How Long To Stay Invested

This is a very common question. Investor does not know how long to keep invested. Everybody wants fast money. In the 4S of What Investor wants, this S is for Speed.

Click this link if you want to know more about the my idea of the 4S of investments.

As mentioned by the genius Mr Albert Einstein,
"Compound interest is the 8th wonder of the world."



The best is to stay invested as long as possible. This is because investment needs time to grow. The longer the investment time, the higher will be the return.

You should keep invested until you need to use the money in the future. 

This is also known as the Investment Horizon.

Graph below shows the differences between 10% Simple Interest & Compound Interest of $1000 over the years. Money value increases faster over time. It is the interest on interest earned.


There are strategies to handle the risk and return of each investment.  

If the time horizon is many years to go, you can invest in more aggressive investments. Aggressive investments normally gives higher return, but comes with more risks. 

When the investment objective is many more years to go, you have more time to manage the investment. You will be able to wait for any market crash to recover back. If the market is good, then the compounding effect will increase your money faster.

If the time horizon is nearer, then you should be more conservative in investment. Choose investments that are more stable and has less return fluctuations. However, these more conservative  investments also gives lower returns. 

There is a saying, 
High Return, High Risk.
Low Return, Low Risk. 



It is better to have a lower return than to lose the money if the market suddenly turned bad or crashes.
It is important to keep in mind on when the money is needed to pay for the investment objectives.

There are no hard and fast rules.
It depends a lot on your risk level, investment objectives, market conditions and many other factors.

Your professional financial consultant will be able to advise you.

99) Investor Challenge # 8 - What to Consider in Investment

99) Investor Challenge # 8 - What to Consider in Investment

This is a very common question. You want to know what to consider before investing. As this involves your hard earned money, it is important to find the answers to this question.

There are many things to consider, and the list below helps to answer the main questions.

1) One factor to consider is the Purpose or Objective of the investment.
a) Is it for your child's education fund?
b) Is it for your retirement use?
c) Is it for your down payment to buy a new house?

There can be many purposes, so list all of them to have a clear overall picture on the objectives.

2) Once you know each purpose, you need to know the total current amount required. 
a) Is it $50,000?
b) Is it $100,000?
c) Is it $500,000?
Remember to multiply the number of study years if it is for education fees.. 

3) Another important factor is the duration or time horizon.
a) Is it for short, medium or long term financial needs?
b) How many years to reach to required objective?
c) Can the purpose date be adjusted later or earlier?

The longer time you have, the less you need to invest regularly.

4) When you have the amount and duration, you can calculate the future value. This is because of inflation, prices will increase over time.
a) What are the inflation rates?
b) What is the total future value?

Please note that different requirement will have different inflation rates. For example, education fees inflation will be higher than living costs inflation.

5) Also, do consider about Risks you can tolerate.
a) How volatile is the investment returns?
b) Can you stay calm in the volatile market?
c) Will you take advantage of the price fluctuations?

Return and Risks exist in all investments.
The investment types you chose have different returns and risk. You cannot eliminate the risks.
Just learn to manage the risks. No risk means no returns.


6) Now, you need a plan to achieve your Purpose or Objectives.
a) What is the expected investment returns?
b) How much is needed to invest regularly?
c) Can you do a lump sum now?
d) Can you increase the amount later?
e) Do you have a plan to achieve your goals?
f) How often you need to review the investment?

Do have a plan to achieve your goals and review the Target vs Actual performance.
Here's a link to read more about an Excel file to track the Target and Actual progress.
http://highlevelrules.blogspot.my/2017/06/investment-growth-target.html







Having the information and plan above will greatly help you in your investment strategies.

You can consult your professional financial consultant to calculate the total future amount. Your consultant can also advise you on the monthly regular investment amount required to achieve each objective or goals. Repeat the whole process for each goal.

You should start investing as young and as early as possible and only withdraw the investment when you need the money for the intended objective. Do not withdraw the money for not its purpose. Doing that will only affect the end result of the investment.

98) Return vs Risk in Investments

98) Return vs Risk in Unit Trust Investments

In investments, everybody wants to have High Returns and No Risk.
However, in real life investments, it is not possible to have returns without risk.

One idea you can use is to divide the fund's 3 Years Annualized Return by its 3 Years Fund Volatility Factor.  The higher the ratio number, the higher the return per risk.

Please note that this idea is not an official measurement, but something you can use as a guide. Please refer to the Disclaimer page.

Click this link if you want to know more about the my idea of the 4S of investments.

For our discussion, we use 2 funds as comparison.

Fund A: 3 year Annualized return =  8.18%
Fund B: 3 year Annualized return =  8.87%

If you only look at Returns, Fund B has higher return than Fund A.

However, have you considered the Risk factor?


Risk Factor

To have a measurement, we can use the data published in the Unit Trust fund performance reports. The screen shot below is taken from FIMM's article on Fund Volatility Factors and Classification.. The fund's volatility is measured over 3 years period.

FVF = Fund Volatility Factor
FVC = Fund Volatility Classification

You can download the full article published by FIMM (previously known as FMUTM) as published in May 2009. Click on the "Fund Volatility Factors and Classification" title and click on the "Download" button to download the article.

https://www.fimm.com.my/investor/abc-of-unit-trusts/understanding-unit-trusts/




Return Factor

Now we want to measure the feturn of the fund. You can use the fund's Annualised Return as per example shown in Fund A's performance review report.



Fund A's volatility is as shown below.

 

Using the information available of the Fund A, you can just divide the 2 numbers. 

3 Year Annualized Return = 8.18
3 Year Volatility Factor =8.3
So, the Return vs Risk ratio is 8.18/8.3 = 0.9855

Fund B has another set of numbers.

3 Year Annualized Return = 8.87
3 Year Volatility Factor =10.9
So, the Return vs Risk ratio is 8.87/10.9 = 0.8138

From the Return vs Risk Ratio, Fund A is better.
It is because you get higher return per risk you took.

Also note that the Return vs Risk ratios will constantly change over time. You will get different ratios for Fund A and Fund B during different periods.

For Foreign Equity funds, the Volatility Classification is normally Very High.
For Local Equity funds, the Volatility Classification is normally High.
For Balance funds, the Volatility Classification is normally Moderate.
For Bond funds, the Volatility Classification is normally Very Low.
For Money Market funds, the Volatility Classification is normally Very Low.


Therefore, it is also important to know the Return vs Risk. It is important especially if you need to withdraw the money during the volatile market. You definitely don't want to withdraw the investment during the stock market down turn, causing you to lose more money.

When you need to pay for your child's education fees, the University does not care whether the market is up or down.

Do review your total portfolio regularly and understand the reward vs risk. As a caution, do not only rely on the Return vs Risk ratio as the only measurement to decide which funds to invest.

The ratio is based on past performance. Nobody knows what the future performance will be.