Good Stuff Happens in 1:1 Meetings: Why you need them and how to do them well
Before you invest - The right approach
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The Road to financial Freedom
Before you invest - The Right Approach
BP Wealth Learning Centre
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Copyright@ 2012 BP Wealth Learning Centre LLP. All Rights Reserved.
The Right Approach
While we agree that we need
to take some risks in
investments, it is also
important that the risks we
take are calculated ones.
Certainly, we do not want to
purchase an investment at a
high price, or to divest it at a
low price.
This is really when financial
education comes into play. It
helps us better evaluate risk
and reward relationship to
ensure that the reward
commensurates with the risks
that we are willing to take. It
helps us evaluate at a given
environment, the price that
we should pay for an
investment.
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The Right Approach
Shares investments is such
that if we buy it a wrong price
on the first time, it is both
difficult and painful to divest
it. As a result many people
held on to their stock to
become ‘long-term investors’.
In many cases, they continue
to average downwards in
hope that the stock will
rebound.
Before they knew it, they
have already held many
shares and yet the average
price is still far from ideal.
This puts the investor in a
dilemma – to continue to
average downwards or to
simply hold on or just sell off
the investment to buy another.
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The Right Approach
Unfortunately, there is not
clear-cut answer. It depends
on the situation. For example,
the weakness in the share
price could be due to the
general sentiment of the stock
market or it could be that the
company is doing badly such
that the share price is
gradually decreasing.
Even if the share price did
eventually reached the
investor’s average price, they
have effectively lost time.
Many people did not realise
that losing time is one critical
factor that can decimate one’s
potential wealth.
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The Right Approach
Let us take a simple of 2
investors A & B. They are at
the age of 25 and wanted to
retire at age of 65. Investor A
started investing at the age of
25 with only $1,000. He
managed to achieve a
compund return of 10% per
year. By the end of 40 years,
his accumuated amount
would be $45,259.
For investor B, he started
only at 11th year. He also
invested $1,000 and also
managed to achieve a
compound return of 10% per
year just like Investor A. Due
to his time loss, he has only
30 years, instead of 40 years.
His accumulated return by the
age of 65 is only $17,449.
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The Right Approach
Year Investor A Investor B
0 $1000
Year 11 $2,853 $1,000
Year 20 $6,727 $2,594
Year 30 17,449 $6,727
Year 40 45,259 $17,449
As one can see, Investor B is
doing eveything exactly the
same as Investor A, but only
10 years later. By the point of
retirement, both at the age of
65, Investor A accumulated
$45,259, which is more than
2.5 times of the sum
accumulated by Investor B,
who had only 30 years to
accumulate his wealth.
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The Right Approach
Figure 1 shows how the
compound interest works out
for both Investor A and B. Just
by losing time for the first 10
years, Investor B lost out to
Investor A by more than 2.5
times the final sum.$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39
Figure 1 Accumulated amount held by Investor A and
B for 40 and 30 years respectively
Investor A
Investor B
Difference
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The Right Approach
The above example illustrates
the fact that not only
financial education is
important. It is also important
to learn early to enable us
sufficient time to accumulate
our wealth. The cumulative
effect is exponential!!
With that we hope you can
consider to register with us as
a student. More education
materials on the way if you
are one! That will help you
short cut the time loss. We
hope to hear from you!!
Website: www.bpwlc.com.sg
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The Right Approach
Financial education is needed to ensure that our
investment is first-time-right or at least close to it. The
risk about investing in shares is that if we happen to buy
a stock at a wrong price, it is very difficult or painful to
sell off the investment.
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BP Wealth Learning Centre
Website: www.bpwlc.com.sg
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