I have mentioned in my 'Me and my goals' page that I will accumulate $1 million by the age of 38 and let it compound at a 10% rate for 17 years till I reach 55 years old. A question that I always ask myself is how am I able to achieve a 10% annual return consistently for 17 years? There are 2 instruments which I can invest in, namely stocks and real estate.
Stock market
The stock market consists of different categories of stocks and funds which include growth stocks, blue chip stocks, real estate trusts, business trusts, shipping trusts, exchange traded funds, etc. Finding a particular stock which consistently yields 10% per year can be an arduous task. To play it safe, I would invest in an exchange traded fund(ETF) which tracks a particular index(eg. STI ETF). A strategy would be to invest a lump sum whenever the value of the ETF falls by at least 30%. This will give us a higher margin of safety and larger returns. A 10% return would then be much easier to achieve. As most people will be too focused on catching the bottom during a downturn, a 30% fall in prices would probably be a rough indicator that stocks are undervalued again.
Investment value at the end of 17 years(assuming 10% return) : $5,054,470
Properties
Another method to invest a million dollars is to invest in rental properties. First of all, I will set aside 20% for down payment of a $1.5million condominium(assuming zero contribution from CPF). I will also set aside an additional $100,000 for renovation and miscellaneous, which amounts to $400,000 in total.
Investment value at the end of 17 years(assuming 10% return) : $5,054,470
Properties
Another method to invest a million dollars is to invest in rental properties. First of all, I will set aside 20% for down payment of a $1.5million condominium(assuming zero contribution from CPF). I will also set aside an additional $100,000 for renovation and miscellaneous, which amounts to $400,000 in total.
If the monthly rental is $3,500(assuming constant), I will be able to clear $714,000 of the mortgage in 17 years using the rental income alone. Assuming tenancy rate is around 70% during this 17 year period, I will have to fork out $214,000 for the mortgage.
- Total mortgage remaining at the end of the 17year period: $486,000 (assuming rental rate does not rise over the years and zero contribution from CPF ordinary account for downpayment)
- Assuming value of property rises 5% per year(30 year annualized return of URA private property index at 6%/year), value of property at the end of 17 years : $3,438,027
- Total mortgage remaining at the end of the 17year period: $486,000 (assuming rental rate does not rise over the years and zero contribution from CPF ordinary account for downpayment)
- Assuming value of property rises 5% per year(30 year annualized return of URA private property index at 6%/year), value of property at the end of 17 years : $3,438,027
- Investing the remaining $386,000 in stocks at 10% return(using the stock market strategy discussed above) over 17 years: $1,951,025
Investment value at the end of 17 years: $4,903,052
*To make the calculations simpler, I did not take into account that interest payments of the housing loan will make up a huge chunk of the mortgage and all calculations done above are based on the assumption that interest rate of the mortgage loan is 0%. However, do note that the interest payments have been factored into the underestimated rental of $3,500.
*To make the calculations simpler, I did not take into account that interest payments of the housing loan will make up a huge chunk of the mortgage and all calculations done above are based on the assumption that interest rate of the mortgage loan is 0%. However, do note that the interest payments have been factored into the underestimated rental of $3,500.
Tidak ada komentar:
Posting Komentar