Financial Savvy
1) Rule 72
Definition :-
A simple formula to calculate number of years required for your investment to be doubled.
Example :-
An investment of $1000 with a return of 10 % interest rate.
72
--- = 7.2 years
10
The above scenario requires 7.2 years to double up your investment.
Averaging your investment towards financial freedom
Step 1 - How to save money
(sources from : Rajen Devadason)
“If you want to save more, then having your bank transfer a portion – say, 10% or 20% of your salary to a savings account the moment it hits your main account, is a great way to put saving on autopilot”
Step 2 – Invest intelligently
Concept of investing – when come to investing, an arithmetic anomaly can be harnessed to help build huge wealth over a span of 10, 20, or more years. Often, though not always, the lower the price of a security goes, the safer it is and the greater its value as a potential long term investment.
Step 3 – Investment strategy - DCA
Should meet 6 criteria investment asset before a DCA program is embarked on :-
i) diligence
ii) value of the investment should fluctuate over time
iii) investment time frame should be fairly long. ( 5 to 7 years )
iv) invest at regular intervals (1 a month, 1 a quarter or 1 a year)
v) invest at each of those intervals in equal amount
vi) these regular investments should continue through all kind of market conditions – good, bad and indifferent
Example :-
Let’s say you have $6000 to invest. You have 3 choices :-
a) you do nothing significant & keep money in FD earning 4% a year.
b) You invest full sum into a unit trust or a security
c) You gradually invest $6000 for 12 months.
Conclusion :-
Choice a) $240 earned as interest.
Choice b) 6% earned base on the DCA table. An equivalent of $360.
Choice c),
How DCA works
1) Rule 72
Definition :-
A simple formula to calculate number of years required for your investment to be doubled.
Example :-
An investment of $1000 with a return of 10 % interest rate.
72
--- = 7.2 years
10
The above scenario requires 7.2 years to double up your investment.
Averaging your investment towards financial freedom
Step 1 - How to save money
(sources from : Rajen Devadason)
“If you want to save more, then having your bank transfer a portion – say, 10% or 20% of your salary to a savings account the moment it hits your main account, is a great way to put saving on autopilot”
Step 2 – Invest intelligently
Concept of investing – when come to investing, an arithmetic anomaly can be harnessed to help build huge wealth over a span of 10, 20, or more years. Often, though not always, the lower the price of a security goes, the safer it is and the greater its value as a potential long term investment.
Step 3 – Investment strategy - DCA
Should meet 6 criteria investment asset before a DCA program is embarked on :-
i) diligence
ii) value of the investment should fluctuate over time
iii) investment time frame should be fairly long. ( 5 to 7 years )
iv) invest at regular intervals (1 a month, 1 a quarter or 1 a year)
v) invest at each of those intervals in equal amount
vi) these regular investments should continue through all kind of market conditions – good, bad and indifferent
Example :-
Let’s say you have $6000 to invest. You have 3 choices :-
a) you do nothing significant & keep money in FD earning 4% a year.
b) You invest full sum into a unit trust or a security
c) You gradually invest $6000 for 12 months.
Conclusion :-
Choice a) $240 earned as interest.
Choice b) 6% earned base on the DCA table. An equivalent of $360.
Choice c),
How DCA works
Arithmetic average price = 5.72 / 12 = 0.4767 per unit
True average cost = 6000 / 12633.88 = 0.4749 per unit
Absolute profit = $695.96
Profit percentage gain = 11.6%
Remarks : I have personally tried this on one of the high dividend yielding stock “APOLLO” and it works. Of course the returns are never guaranteed. Nonetheless, I believe doing so could be the smartest resolution you make. The choice is yours. TQ
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