Mar 22, 2013

Set Your Investment Target


Assuming you have RM50,000.00 now in your saving account or under your pillow. What will happen if you kept it that way in the next 10 years? Your money will lose its value. For simple illustration, in the 1980’s, RM1.00 can buy a decent good breakfast. Nowadays, RM1.00 can’t even buy a cup of tea.
Let’s go back to our investment topic with RM50,000. If you wanted to grow 50k into 1 million, you need a structured way. What do you need to grow your money? The answer is Compound Interest or Growth.
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Using Compound Annual Growth Rate (CAGR) formula – as illustrated below
CAGR
How to interpret the above CAGR finding?
  1. If you had RM50k and you want to grow into RM1 million within 15 years, you will need an investment that can provide 22.11% return on yearly.
  2. If your investment can only give 10% return annually with time frame of 15 years with same amount initial investment RM50k, you will only get RM208k.
  3. Similarly, having the same amount RM50k and grow it into RM1 million with 10% growth rate of capital appreciation, you will need 31 years to get it.
Now, ask yourself these questions:
  • How old am I? When I want to retire? Assuming you are 40 years now, you want to retire by age of 55. It means you only have 15 years.
  • Where can I find investment that can provide return at least 22.11% annually? Is your annual growth rate target reasonable with your time frame?
    • Stock market?
    • Property?
    • Unit Trust?
    • Commodities (Gold, Silver)?
Of course, my obvious choice is stock market investment. You can play around with the CAGR calculator to fit your investment objective, time frame and return. The earlier you begin your investment journey, the better it is!!
You can download the CAGR calculator in the below link:

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