Thursday, March 22, 2007

Will my $33.8K grow into a $1mil gold pot?

Will my $30K grow into a $1mil gold pot?

=== Part 1 ===

Last Friday, on the my MRT trip back home, I overheard an interesting conversation between 2 guys. One of the guy is in the early 30s? (lets call him Yuppie) and the other in late 50s? (Owen) . It went something like this:

Owen: You must buy a house lar! My mother recently sold her house for more than $125k! When she bought in the 60s, it was only $6k!

Yuppie: But now housing so expensive! That generation is over liao....

=== Part 2 ===

Wow! I thought to myself from $6k to $125k! As soon as Mr. Yuppie and Mr. John alighted, I whipped out my trusty scientific calculator and start punching in... [125] [/] [6] [=] [x^y] [(] [1] [/] [42] [)] [=] and guess what is the answer... 1.07497661853...

=== Part 3 ===

Hmmm...buying the property is great!... the compounded interest rate is 7.5 percent, the only problem is I do not have so much cash to put it down to purchase an investment-grade property now... of course unless I take a loan which is out of the question.... I don't like to be in debt...

I started to play with my trusty calculator, after a few tweaks, I *think* got this winning combination... with initial investment of $33.8k, at 12 percent compounded rate, in 30 years, the sum would be a tidy $1,0126,453. YEAH!!!

=== Part 4 ===

The only thing for me to do now, is to save my 33.8k, find an investment that will likely give compounded return at 12 percent consistently for the next 30 years... then I would have my pot of gold.... hmmm..... sounds quite mission impossible.... if you have any candidates in mind, do leave me a comment....

Warm regards,
Fu Chin

Disclaimer: Completeness, accuracy and opinions based on information and comments mentioned via this website cannot be guaranteed. Investors should always conduct their own research before making investment decisions.

10 comments:

returntomean said...

DLS the dividend reinvested international small cap ETF should return a point over the snp 500.

http://longtermequity.blogspot.com

I dont own it yet, i am looking for the best among the wisdom tree indices. Some more research is required.

I own Brk-b which should get your desired rate for the next decade but 30 years? cant say.

returntomean said...

As a note did the house price appreciation occured in a time when inflation rates were high? If so then the 7% doesnt mean much.If inflation has been 3% then real returns have been only 4%. You also need to deduct annual taxes etc. If teh house was rented out that should have offset inflation. The SNP 500 has returned more and usually returns 6% above inflation.

returntomean said...

Ok couldnt resist one more comment!

A better way to invest in property especially if you have only small amounts of cash is to buy stocks of a REIT and reivest all dividends back into the REIT. Individuals dont maximise income from property, a REIT does that and also passes on price appreciation to you. Also you need only buy as many shares as you can afford.

There is no long term track record ( >30 years ) for REITS but what i have seen is positive.

http://longtermequity.blogspot.com/

TheKen said...

Hi Fu Chin,

Do you want to exchange links with my blog ?

http://singaporeshares.blogspot.com/

LuckySingaporean said...

Hi,

My name is Lucky Tan. Some of you may know me for my blog on political commentary. I have not purchased a single stock since middle of last year when I bought some COSCO (http://singaporemind.blogspot.com/2006/05/some-singaporeans-get-unlucky.html). I've been investing with decent returns for many years.

Over the years I've been through many bull markets and many bear markets. But through the UPs and DOWNs, somehow I have done okay overall.

I really think investing is simpler than many people make it out to be. The future is fraught with uncertainty, and many people spend too much time trying to "predict the future" of companies. Over the decades, I've invested in more than 400 companies and kept track of many more.

You can filter companies that their strategies falling apart, average "nothing special" fairly value companies, over price companies, companies. Then you are left with a decent lot....any number of approaches can work....low valuations (low PTB), growth, free cash flow, PEG ratios etc etc. Many investors ask "which financial metric is the best?". I believe this is a wrong question, because stock screening methods overtake each other....for 5 years a Low Price to Book may perform well, then high dividend yield stocks may perform well and so on.

There is no such thing as a "best method" even though a "best method" exists for the next 5 years no body can predict which one.

The important thing is most methods have a "good enough return" and you just need to compound on that return to grow your money. If you look at Business Times, Teh Hooi Ling's column she tracks a number of stock screens and the best peforming one is different from year to year but the sensible and schemes all perform quite well and exceed 10% compounded since they started.

My suggest (don't dare to give advice):

1. Keep your method simple so that it can be applied easily and so that you won't stray from it when you apply alot of subjective thing.

2. Don't try to reach out to "get too high a return" because that would mean taking on too much risks. What creates wealth is the compounding of returns and NOT spectacular one-off returns. Compounding is the key.

One common mistake I find new investors committing is to "try to find an undiscovered gem". There are tens of thousands investors many of them very good looking at our markets....to think that one is so smart to discover a "gem" that others has miss and not yet understood is "a bit" of an estimate of ones' ability. There are many good stocks that are discovered gems that you can buy and hold. Many stocks that performed very well in the past 9 months are household names blue chips that everyone even non-investor know.

Remember KEEP IT SIMPLE, COMPOUND YOUR MONEY.

spasm said...

I like what u have done with the blog.

I too am an investor and it is my passion.

Currently I have positions in Sincerewatch, HTL, BIL, Celestial and AsiaPharm.

I have held these holdings for 1 year and it has increased 40%. This is not a buy, sell or hold recommendation.

While I do not think that a 40% compounded rate is sustainable in the long term, I am reasonably satisfied that the securities were undervalued when i purchased them.

I would love to share more with you over the coming months. Keep up the good work and happy investing.

Fu Chin said...

Dear all,

Thanks for all your kind comments and advice.

I have yet to find the magic instrument yet... I will update in this blog, if I do find one...

Thanks again! :)

Warm regards,
Fu Chin

Anonymous said...

all u need to know is good stock get better , and punt stock is luck that all ,,,, work on the good one wiil do , like you work on the smrt.. get better stock stick to something $3 above like wing tai, and u sure will be rewarded

Anonymous said...

Actually, you have already found the answer to your question:

GOLD!

look at the past: from 1971 to 2006, gold went from $35 to $730, about the same rate of return as the flat in your own example.

look at the future: from now to 2015, gold will go to at least $5000, that would fit your investment profile. Best of all, you do not have to buy one big chunk. You can start buying now even with just S$1000.

For details about gold investment: follow my profile or looking for the thread "How do I invest in gold"

Good luck with your pot of GOLD!

Anonymous said...

Sorry where can i find the link to "How can i invest in gold?