23 June 2011

Time * Investment Growing Speed = Investment Return

Stupid, It's growing speed that determine your investment return in a long time frame!


Too many people especially youngsters are telling me that they do not have enough investment capital to start with. However, in my opinion, time is money. In short, it is 'Time * Investment Growing Speed' that determine your investment return in a long run.

As a long term investor, I have gone through the uptrend and downtrend of the economy since year 2003. Over the period of time, I have developed and adjusted the investment strategy based on market condition and my investment philosophy. When I was in early 20s, I do not have any financial burden and I am able to invest 100% without putting aside emergency fund. However, due to low invested capital, I actually started up investing with RM11,200.00, which is the education insurance payout that my parents started investing since I was young. I did actually divided it into two portions, one is into shares and another one into Wawasan 2020 Mutual Fund. However, due to the lack of the stock picking skill, I ended up losing 70% of my investment in stock market. It was the beginning of my stock investment journey as well as mutual fund.

In Year 2003, I was able to meet some of the kind-heart people on internet (which is why now I also would like to share with you some of my thought on investing). Since then, my portfolio was able to grow in a speed of 20%-30% annually (of course, I also added in my savings in my portfolio until the savings becomes less significant in the growing speed of my portfolio).

Let me show you the growing speed here: considered if you start investing with 2,000.00 and invest another 2,000.00 for every year later. Below table illustrate the different result based on the speed (return):



2% Growth Speed
10% Growth Speed
20% Growth Speed
30% Growth Speed
  5 yrs
12,616
15,431
19,860
25,512
10 yrs
24,337
37,062
64,301
112,811
20 yrs
51,567
128,005
450,051
1,640,430
30 yrs
84,759
363,887
2,838,516
22,699,962
40 yrs
125,220
975,704
17,627,259
313,023,495

So assuming that you are very conservative people and would only willing to take the lower risk products such as Fixed Deposit, your return would be 2x different from the higher risk product such as stock. As you can see, after 5 years, the difference is 2.02x for the speed 2% vs 30% . If you compare it in longer time frame (40 yrs), the difference is around 2,500x!!!!

So, stop thinking of just save your money in the bank. Of course you will tell me that it is risky to invest in the financial product that you are not familiar / felt comfortable with. Nevertheless, you as a youngster should start putting some money in financial products and learn more about the investing skills so that your speed of growing your portfolio can increase over the year. 

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