Investment Basics
I hope our reader has read our financial literacy section and get an idea on how to manage our finances.
In this section, we would like to share with you the importance of investing.
What is investing?
Literally it means to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value. - dictionary.com
Investopedia.com defines it as The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.
Warren Buffett defines investing as "the process of laying out money now to receive more money in the future.”
Basically the process of investing is making money work smarter and not harder for us.
How to invest then?
There are many different ways you can go about investing. This includes putting money into stocks, bonds, mutual funds, ETFs, real estate (and other alternative investment vehicles), or even have a start-ups.
Before we jump into the details of investment vehicle, we would like to show you the greatest tool of investment
--> The Concept of Compounding
Concept of Compounding
Compounding is the process of generating more return on an asset's reinvested earnings. To work, it requires two things: the reinvestment of earnings and time. Compound interest can help your initial investment grow exponentially. For younger investors, it is the greatest investing tool possible, and the #1 argument for starting as early as possible - investopedia.com
Try the following scenarios using the calculator on the left.
Basic scenario - you're working and the retirement age is 60 years old
Scenario 1:
Age: 20 years old (just started working)
Initial investment of RM10,000
Monthly contribution of RM 700
Interest rate of 5%
Duration 40 years (40 years left to retirement)
Scenario 2:
Age: 30 years old (no prior savings nor investment)
Initial investment of RM10,000
Monthly contribution of RM 700
Interest rate of 5%
Duration 30 years (30 years left to retirement)
Based on the above scenarios, noticed that the Scenario 1, investing earlier in life would provide you a final balance of more than RM 1 million?
Hence, invest early and consistently.