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How much do you need in order to retire?
To answer this question, we should ask ourselves, how much do we need to spend every month? What kind of lifestyle do you want to live?
Let's take for example, I'm a modest guy and am comfortable with RM5,000 per month.( Today's value). How much money on hand,do you think I need in order to retire?
Notice that unlike most speakers out there, I did not inquire about your age, you will see very shortly why the number of years you expect to live on does not affect how much you need in order to retire soundly,given that you are able to replicate the below situation into your portfolio. Besides,who can predict when they're gonna die? The following part of the article is very powerful, before you read on,I invite you to find a place where you will not be interrupted as you will discover how easy it is to retire. Sit tight and be prepared to be astonished as I open your investment eyes.
Let's move back to the above situation, a nice guy with not much commitment,he only needs to provide for his parents and himself and they will all be living a humble lifestyle with RM5,000/month. How much does he need to retire forever (at least until he kick the bucket)?Below is the magic number :
If you want to retire at a small town with RM5,000 pumped into your account for you to use monthly,You'll only need Rm1,000,000.00 . Why?
Theoritically, if you use RM5,000 per month, all your RM1,000,000 would have been used up in 16 years and 8 months.Say,you're 30 years old now,by 47,you'll be broke if you retire with only RM1,000,000.
So why did I say you can retire without worrying about how many years more you will live?
Let's introduce the dividend paying stocks!!
There are few kinds of stocks in the market,one of them is the dividend paying stock. These companies are usually established cash rich company with strong free cash flow. These stocks may not be able to generate amazingly high return but they are stable and most of the time will not be too badly affected by the economic dips. Most importantly, they generate dividends. When these companies have more cash than what they know what to do with,what do they do? They give them out, straight to the shareholder's pocket. How we usually measure these companies are through it's dividend yield.
Dividend yield(%) = (Dividend Per Share for the whole year / Price of Share at the time of purchase) * (100)
Let's bring out the first business I have ever invested in, Padini.
As of the time of writing, Padini is giving out a projected dividend of 10 cents per share (And growing based on record) . Divide 10 cents by the share price of 196 cents and you get a dividend yield of 5.1% and supposedly growing). 5.1% if considered okay. But I would always enter to support the price of Padini shares at 1.61 which yields a dividend yield of 6.2%.
Now,multiple this 6.2% to your 1 Million ringgit and you should obtain RM62,111.00. Make it easy,say RM60,000.00 per year, divide it by 12 months and you will arrive at the number I have shown you above, RM5,000 per month.
This means that you will enjoy a passive income of RM5,000 per month doing nothing. No bosses,no difficult customers,no stress.
Do you know what is the best part of this idea? Your RM1,000,000 is still there. That means after 10 years,if you choose to donate all your money to charity, you can still use the RM1,000,000 in your assets account. Given that the share price does not climb, which is not likely the case as the share price will increase as the company make positive progress. Just imagine if it is compounded at only 10% per year. Retiring at a small town with a PASSIVE INCOME of RM5,000/month just to find out that your humble pie of RM1,000,000 has turned into RM2,600,000.00 in just 10 years.
Not too bad~
Of course, generating RM1,000,000.00 to invest is easier said than done but with the right method and determination, It's only a matter of time.The only obstacle between you and your financial freedom is your unwillingness to learn and to take action. I challenge you to say you can't afford to retire after reading this article.
Astonished by what you have just read? Share this with your loved ones for this might be the greatest gift you could give them. The guide to financial freedom.
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"The Most Powerful Force in the Universe is the Power Of Compounding Interest" - Albert Einstein
What is compounding interest?
In order to illustrate the effect of compounding interest, let us do some exercise. First,get yourself a sheet of paper,as large as possible. What you do with this paper is to start folding one edge to the opposite edge and count how many times you can fold the paper until you cannot fold it anymore. Theoretically, you should only be able to fold it up to 7 times. Now,compare the thickness of this paper against the thickness of the paper when you first started out. What you have here is called the effect of compounding thickness.
What you have just done just now is to compound the thickness of the paper at 100% (or double) every time you fold it.
Mathematical Explanation using geometric progression:
t(2.00)^n = T
where t is the initial thickness
n is the number of times you fold the paper
T is the final thickness
2.00 is the number used for it is the constant compounding rate. (Keyword:Constant)
In case you want to know, taking the average thickness of A4 paper at 0.10mm, and the number of time of folding as 7. The final thickness of your paper is now 12.8 mm. Which is 128 times thicker than your original thickness.
Now,you will be wondering what has paper folding got to do with investment. In fact, it is the key to a successful investing journey. Just imagine if you could replicate the above situation into your investment portfolio. By using the same formula,with
t as your starting capital
n as the number of years
T as your results
you may change 2 to other number (1 + ROI/100) but to illustrate how wealthy you can be,we will use 2.00.
Now,let's perform some simple calculation,
Let's imagine if you are 20 years old, and you're only have a savings of 10,000 MYR that can be put aside to be invested. Compound it at 100% per year over 10 years. If you're with me just now, you should come to an amount of MYR10,240,000!!!. Turning 10,000 into 10 Million in reinvest-able cash/equity, not bad for a young adult, how many people ever have even 1 Million in cash/equity in their lifetime! However,let's all be realistic. A 100% gain for 1 year is not easy and in fact,you need a little bit of luck to achieve that. But to achieve that results consistently for 10 years, it doesn't sound achievable. But what you can achieve is 10-50% if you follow the correct method and do your due diligence. It might take a longer time but the rewards are sweet. If you want the fruits, you must first plant the seed and nurture the plant.
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"Integrity is the essence of everything successful"- Richard Buckminster Fuller
We often hear people spilling out quotes and words on integrity but what is integrity?
Given a bowl containing white and black beads,and if you're told that the black bead will corrode the white ones, and were asked to discard the black beads,it would easy to do so as they are easy to be identified and are distinct from each other. If these beads signify the rights(white) and wrongs(black) in life,we are more likely to get a lot of grey beads along with some black and white beads. The question is,how do we separate them from right or wrong?
I happened to come across this problem personally just recently. As of 24/4/2014,I'm an undergraduate in Technology University of Malaysia (Universiti Teknologi Malaysia). I'm fortunate to be bestowed with a full scholarship throughout my studies here. In the agreement,it says that I should not posses any other scholarship or bursary or any form of financial assistance of monetary nature.
PTPTN is a student loan in Malaysia that aims to provide financial support for local students in their tertiary education. However,the criteria says that I should not be holding any scholarships. This idea came to me that I could apply the student loan as a cheap loan to leverage my portfolio. Of course,this is strictly speaking,not allowed. However, just like some witty lawyers, I reckoned that PTPTN is,technically speaking not a scholarship but a loan and if I could somehow bypass the PTPTN side(I have actually figured out the killer plan but it is very technical), it is very possible for me to take up the loan without both my sponsor's and creditor's consent. It may not sound like much but a cheap loan of 28,000 MYR at only 1% per year is a very tempting offer. Imagine if I could compound them at only 20% per year? I would have 58,060 MYR by the end of my fourth year. More than enough to pay back the loan + all it's interest.
It all comes down to these thoughts of "it can be done. Besides,I'm not harming anyone,I'm just borrowing money and I will pay it back once it's done" vs "It's not correct morally and ethically". So I went around asking other people's opinion,and to my surprise,it is agreeable to most people. Probably because Malaysians are so "smart",we tend to look at the matter as this, Is it worth losing the opportunity to make 30,000 MYR almost risk free in the name of self imposed principles and life values?
Then I came across these posts by one of my role models,Ken Chee (Singaporean Entrepreneur,Also in the field of Investment,very inspiring person,in fact,I learnt about the quote by Buckminster Fuller from him). He likes to write a lot about life values and life wisdom. But one word that he likes to mention is, Integrity. This word made me ponder for a while, I kept on hearing this word,even learnt about it in our moral classes during my primary schooling days,but what is it really? The definition below is what I found upon searching it on the internet. The first keyword made me feel ashamed of myself at that instance,Honesty.
I believe the world is a shady place and in order to influence the world and not otherwise,one has got to hold tight to his own believe and principles. When I had that plan and was about to carry it out,I was not feeling well, why? It's almost risk free,what do I worry about? I believe I know what I was worried about,Death. The death of my moral values,the death of my integrity and the death of my ability to separate between what is right vs what is wrong. There are many ways to reach our dreams,but no matter how tough it is,we must persevere through it without losing ourselves. Today,I'm tempted by this opportunity to misuse the student loan,tomorrow,I might receive an offer to reveal "confidential company data". But I believe I will be able to make better decisions tomorrow for I have learnt Integrity.