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Savers are losers – invest NOW

March 3, 2009

Would you believe that? Savers are losers said Robert Kiyosaki of the ‘Rich Dad Poor Dad’ fame. What? All these ideas of savings that were planted in our heads since we were tiny tots are wrong? Well thats what I heard last week at a wealth talk held in Bandar.

Robert has been arguing that savings doesnt make more money. So what does? Simple – investment. Buy bonds, stocks, shares and unit trusts and the time is NOW. There has never been the right time but now. The global financial crisis which hit almost all parts of the world since last year has bring about a good side of it – the price of these investment is now so low. One financial expert said to me that this is the lowest in 80 years. Thats almost one’s lifetime.

A financial wealth planner from the BICB Capital (a subsidiary of BIA) also said that now is the time to buy shares, equity, bonds etc and dont just limit to one investment but to many. This is akin to the phrase – Dont put all your eggs in one basket.

So how does investment work? Say that you have a gran now and you don’t think you want to use the money now or in the near future. You can either, (a) save it and put all in your savings account; (b) give it to a fund manager and let him or her manage it for you to be invested or (c) put all under your pillow and sleep with it.

If you have chosen (a) you will earn maybe a few cents more in six months’ time but your money is save – hence savings, duh! If you have chosen (b) this is what happens. Your fund manager will invest your money by buying shares from a global trading equity fund company. Such global companies also have shares in different types of global businesses such as agriculture, food, health care, mining, energy and utility sectors, etc. So meaning to say, if one sector is not performing well, the rest of the sectors will continue to support your shares.

Now here is the tricky part. You may have seen the demographic charts or pie charts and shares talk on Tv or you may have seen these in the papers. Because I am an just an ordinary person in the street, I don’t want to look at how my shares are performing or it will drive me nuts to see that the shares are performing very well today but not the next day. So let your fund manager bear the anxiety and heart attacks on the performance and you agree to how long you want the manager to hold your money for.

As in any investment there are always risks. You may lose in a short term and you may also lose in the long term. Nope, I didn’t type that wrong but as mentioned earlier, since now is the best time to buy, the cost of shares are low and you sell them when they cost more. Buy when low, sell when high.

So what happens if you have chosen (c)? I don’t think people still put all their money under the pillows now, do they? They do? Tell me who.

The financial planner who shared his knowledge with me also showed me about retirement planning. He asked the following:

When do you plan to retire? Say, in 20 years time

How much do you think you will need every month to support your lifestyle when you retire? I say, Maybe $2,000 per month (we don’t know how much 2k is going to be worth in 20 years time, right?)

How long do you think you will retire? (That is before you …) I say, 20 years – God knows.

The planner calculated with these facts that I need a whooping $713,254.75 if I am to retire by 55 and if I am to maintain my $2,000 per month lifestyle afterwards.

So, here is the planning:

The financial goal is $713,254.75 and say that I only have 20 years to achieve that amount.

Yearly savings or investment required:

At 2% per annum (low risk) – I have to save $29,355.22 per annum

At 5% per annum (mid risk) – at $21,570.67

At 8% per annum (mid-high risk) – $15,586.19, or

At 10% per annum (high risk) – $12,453.16.

So in a nutshell, the earlier and the higher amount you save, the better it is if you are to achieve your retirement financial goal.

Warning – this post is for information only and is not to be taken as a financial advice. Please consult a qualified financial planner or adviser for further information. Most offer free financial consultation at no obligation here in Brunei. In other countries you will be charged for certain services including consultation.

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