Quote for the day:
The idea of investing is sexy. We are all in a hurry to do it. The more technical and highfaluting, the better. Stocks, bonds, forex, real estate – bring them on! The wisdom of the wise tells us to make sure we have the “pisi” (rope) to invest and make money even during market fluctuations. Yes, even for supposedly–dummy-proof instruments like mutual funds. We must consider worst-case scenarios before we let excitement push us to jump without a chute. Dr. Noet’s column today explains for example that even for assets we are planning to hold to maturity, we cannot just be fixated on the specific date in the future when we will get our principal plus the discount or minus the premium. We must also think about what will happen if worse comes to worst, we need to liquidate before that time.People think they can invest P20,000 and grow that to a million if they are smart enough. That’s an urban legend. Truth is, you need money to attract money. Capital formation is very important.
-- Augustus J.V. Ferreria, senior executive vide-president of Generali Pilipinas, in a MoneyMakeover session May 5, 2008.
“But this opportunity comes only once!” the thought reverberates in my head. “Nah,” reason sets in. That’s greed talking. Conserve financial strength, build up capital, choose tradeable investments and only then invest. Breathe in, breathe out. :-)A high income or extensive wealth will allow a select few the option of holding onto assets irrespective of market swings. Indifference is a clear clue that they have judged themselves to be liquid enough to either withstand the market spikes or remain focused only on the maturity date. This is the privilege of having a "mahabang pisi".
For most retail investors though, our pisi is much shorter. We are much more prone to a liquidity squeeze and more likely to react when the day-to-day value of our long-term assets are fluctuating. The irony is that when investors sell when prices are already falling, values drop even further. Panic begets large losses and large losses beget further losses.
Greed is a big emotion that we all give in to and do irrational things when it comes to investing our money. Unfortunately, many of us refuse to acknowledge that greed is what to drove us to do these irrational things and when things get out of hand, it still prevents us from doing the sane thing.
No wonder it's a deadly sin.
You can grow 20k to 1M in 40 yrs. if you’re smart. You can do it in 10 yrs. if you’re lucky. The urban legend is everybody can be lucky. Smart investors get rich slowly. For me it’s luck 40M in 18 yrs.
i agree about that urban legend...
20K php is about $470 USD...that gets you 15 shares of msft, trading costs factored in...not even a full lot, not even enough to open & maintain a discount brokerage account...
that only way 20K php becomes 6 figures or more is via the lottery : )
The key to investing is really starting early and watch compunding interest grow. The $20K growing to 1 million is really achievable. All you need is 20 years and a steady 10% annual investment return.
Sorry Jon, P20,000 invested at 10% compounded annually for 20 years grows to P134,550 only.
The correct period given the same conditions, is 41 years.
are there 40-year maturity bond that give 10% compounding interest? if i remember right the jobo bills had 40% coupon rate. to mop up excess liquidity they said.
anybody can grow 20K to 1M.. the question is how long.
if you have 1000 friends and relatives each giving you P1000 gift cash, that's P1M.
One point I have against buying this urban legend. It lulls you into saving just P 20k ($500) and splurging the rest of your income till you're 65, hoping that P 1M gold at the end of the rainbow will be there. Just like taking a slimming pill while continuing to overeat.
Financial security and wealth formation is a serious lifetime commitment, you need to think moneysmart in every aspect of your life: earning, eating, housing, schooling... Everyone who earned their own wealth focused big-time on getting where they are now and put in much, much more than just $500 worth of capital and labor/effort to make it.
Best to dismiss such urban legends, learn from the winners, emulate their values, and avoid the pitfalls to achieving financial security. That's what this blog is precisely for. :)
ACN,
that's not an easy question.. afterall 20K is almost nothing nowadays... if you go to supermarket, you will probably go home with less than 10 shopping bags to be consumed in a week or 2. So assuming, you put that 20K in a fixed interest investment, it might take you 50 yrs (or more)to come up with a 1M. By then, that amount will probably be enough to support you to buy your medicine to help you during your old age.... for maybe a year or less. Lol. BUT that 20K can also become 1M in less than 5 years... for a very few of us who knows the intricacies of investing.
@ Robert
Yup, I agree with you. This is exactly why it is not wise to have a fixed target amount for retirement.
Our aim should be variable not fixed. The value should (at least) be equal to monthly expenses. Ideal scenario would be to have a passive income twice your monthly expenses.
Going back to Augustus' statement, he left out the time component. Hence, on this basis (or a lack thereof), growing 20K to 1M is NOT an urban legend.
ACN, let's not get caught up in the technicals. We all know what he meant :-) even if he didn't specify the timeframe.
hachiko, that is SO true. Couldn't have said it better.
oda, i wouldn't depend on the lottery to make me into a millionaire :-)
so Salve, do you agree with his position?
saving 20k pesos annually with 10% interest compounded annually can give 1 million peso on the 16th-17th year
just some facts...... if some people put their savings into stocks of chinabank 3-4years ago..... it would have doubled in 3 years time...
if put into pldt on 2003..... would have grown by 10x by now
@ chris
this is why it is important to state all factors. this is especially true for those people who are in a position to easily convince others.
In your reply, you assumed there is an additional investment.. but is this aligned with Augustus' position? We don't know, he didn't said annually nor single investment.
@ salve
Saying "We all know what he meant" is not prudent. Accepting what he said without these factors, imho, is not money smart.
I don't need to convince you, nor you need to convinve me... my 2 cents worth lang.
@ACN.....
hhmmm .... is it not saving annually? i assumed it's saving annually..... else very difficult to reach target goal......
and beside, since one already start saving... why not continue?..... cheers
@ chris
read the whole thread.. you'll see that posters have different assumptions.. you assumed 20K annual investment.. some of them, a one time 20K investment.
ACN and Chris, read the quote again carefully. It says nothing about an annual investment. And sure you can grow P20k one-time investment to 1M in 40 years, but good luck on having a good retirement.
Let me inject what Hachiko correctly pointed out. We need to disabuse ourselves of the notion that a one-time small investment is all we need plus the luck that comes from heaven. It takes years of commitment -- even habit -- to grow a nest egg. But this doesn't mean that we shouldn't try. It only means that we should try consistently and go for capital formation as a worthwhile goal if we want to make significant steps towards being financially independent.
Having said that, life is also not just about money. Balancing life goals and money goals is most important, because wealth is truly not just measured by what we have in our investment accounts. Family, friends, health, spiritual beliefs, community, work -- they are the real things that make up a good life Money just makes work a lot better.
But of course, diversity of opinion makes life interesting, so yes, ACN, we don't have to convince each other :-)
I feel that urban legend which encourage us to manage our finances smartly and more wisely. We cannot be impatient if we want our money to grow, according to me we can invest wherever way we want. Study the market then invest though we never know the unpredictable nature of the market. Be at peace that your P20k is safe, relax and try to enjoy the company of your loved ones.
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