19 May 2011

The POWER of Compound Interest!

Do you know the power of compound interest? Just 26% percent return a year, will make your fortune increases by 1 more '0' every ten year. The most unforgettable lesson which I learn from uncle KLSE.8k is that, the believe in 26% compound interest can change your life. He shared with us that with 26% return a year, you will double up your investment within 3 years. The more wonderful part is, your fortune will increases by one more '0' every ten year.

Let me give you an example. If you managed to get 26% return a year
, your invested capital starts from 1,000.00. After three years, your invested capital will be increased to around 2,000.00. After a ten year period, your invested capital will grow till 10,000.00. Quite amazing, ya?

But, how can we do that?

I will illustrate an example again by showing the different type of asset classes:


Shares is one of my favorites investment vehicles as I knew it since I was in secondary four in year 1998. So I am quite comfortable with putting my money into it. However, you must understand the underlying risk in it. First of all, it is not suitable for the investor aims for short term investment horizon, as it fluctuate very high. However,
as I mentioned earlier, it consistently gives me a very decent returns, which is about 26% a year.  

2. Property

Leveraging and active property management is the key to success in this asset classes. I have been hearing many unsuccessful story of investing in property from my relatives and friends. However, I gave it a try by investing my 1st property in Iskandar Malaysia zone with the hope of a mass development would be in place nearby my hometown. To read more about property, you can visit my property page.

3. Unit Trusts

Unit Trusts is another asset classes which I like after shares and property. Why am I so? This is because by investing in Unit Trusts, I am able to invest any kind of asset classes in any country. Especially invest unit trust in Singapore. 

4. Money Market Funds

It is one type of unit trusts, providing a better than fixed deposit rate as it invests in short term government bond or corporate bonds as well as the t-bills. I cannot find any other asset class to provide higher short term rate as compared to fixed deposit and  

5. Fixed Deposit

I have some fixed deposits in foreign currencies. There are two risks here, one is currency risk and the business risk of the bank. I would like to use it as a tool for my next investment in property as well as in shares market. 

6. Bank Saving Account

Sadly say that, I put a very little in my bank account, after I know the power of compound interest since I was young. however, saving account, fixed deposit and money market funds stand as a backbone to allow you stay through the difficult time during recession and give you a sense of 'protection'. But I always say that, the confidence or feel of safe comes from your heart & skills in investment world.

So, after comparing the above asset classes, the possibility of achieving 26% return a year is impossible by managing your portfolio actively by allocating mix percentage in between the asset classes above. If you are interested to read more, please read my other posts below.

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