Finance Freedom – Page 14 – WELCOME TO CAPITAL OFFICE AUTOMATION

How Long to Double Your Money?

This is an important question to be answered when we are doing our financial plan.

The duration required to double the money depends on the interest rate. The rule of 72 provides the answer to this.

The rule of 72 says that to find the number of years required to double your money at a given interest rate, you just divide 72 by the interest rate used. For example, if you want to know how long it will take to double your money at nine percent interest, divide 9 into 72 and get 8 years.

If an investor choose a very safe vehicle, i.e. Fixed Deposit, he will require more years to double his money and vice versa.

Considering that stock investments have returned roughly 10% over the last 100 years and investment grade bonds have returned roughly 6%, a portfolio that is divided evenly between the two should return about 8%. Dividing that expected return (8%) into 72 gives a portfolio that should double every nine years.

Due to the risks, one would not want to expose himself to the same investment vehicle. Hence, an effective plan for choosing the right vehicles and diversify your assets across a variety of investment classes to help protect against market ups and downs.

Start setting money aside for the future-one that will allow you to maintain your current lifestyle and is also consistent with your investment goals, risk tolerance and the amount of time you have to save.

Happy saving, happy investing!

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Why Investing in Unit Trust?

There are a lot of investment vehicles in the market, e.g. shares, unit trusts, properties, options, futures, etc. Why unit trust? Some people will ask me.

The answers are simple. It is because of the following reasons:-

Diversification
Lower entry cost
Economy of scale
Professional management
Allow investment using Employees Provident Fund (EPF)
Liquidity

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DIVERSIFICATION

People always said “Do not put all your eggs into the same basket.”.

Diversification is the most important component of reaching long-range financial goals while minimizing risk. Unit trusts are collective investments which allow a group of people to pool their money into a single fund. A fund manager is then able to invest on your behalf in a wider range of assets (such as shares, bonds and property) than if you invested alone.

Because of its diversification feature, the poor performance of any one asset in the fund is less likely to have a major adverse impact on your investment as a whole.

LOWER ENTRY COST

In Malaysia, most fund starts with minimum investment of RM 1,000. Some unit trust companies even allow the minimum investment of RM 100 with monthly contribution. Unlike property investment, it requires high capital to enter. Similar to stock investment, it is impractical to buy just RM 100 value of shares as the brokerage fee would be too high considering the low starting capital.

ECONOMY OF SCALE

For a smaller amount of money, you can invest in a diversified portfolio of assets which could cost you more to buy if you had to pay for each asset in the fund individually.

PROFESSIONAL MANAGEMENT

When you invest in unit trusts, you have experts handling the procedure for you. This is convenient for those who aren’t able to constantly follow the stock market or lack experience in financial growth platforms. These expert services include obtaining quotations on shares that are being bought and sold and the safekeeping of cash, as well as the professional management of accounting and bookkeeping activities.

Hence, it allows anyone, even without experience to start investing at greater confidence.

LIQUIDITY

Unit trusts have a high liquidity, which means they can be readily converted into cash.

Buyers will normally get the cash within 10 calendar days from the date of sale.

ABLE TO INVEST USING EPF

In Malaysia, KWSP / EPF has allowed its members to take out money from Account 1 (which is meant for withdrawal only at the age of 55 and above) for unit trust investment with certain approved funds by the KWSP / EPF, with certain limitation.

Also, it is worth to note that the initial sale charge for unit trust for EPF is much lower than the cash investment due to the control of the sale charge by the authority.

EPF members are not allowed to take out EPF money for stock investment and are only allowed to take out money from EPF Account 2 (not Account 1 with more money allocation) to buy property with certain limitation.

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Wanting to invest in Unit Trust but do not know how and where to start? Feel free to contact me via facebook or submit a form via this website.