Saturday, June 27, 2009

Why Invested in Stocks? Taken from Investing Note's blog

Based on this study, we can say with confidence that over a lifetime of investing, an investor will reap a total annual return of 10% or more.If you compare this with the amount you could earn by owning CDs, annuities, government bonds, or any other conservative investment, the difference is considerable.

Let's see how that difference adds up.Suppose you invested $25,000 in a list of common stocks at the age of 40, and your portfolio built up at a 10% compound annual rate. By the time you reached 65, your common stock nest egg would be worth $270,868.

Now, let's say you had invested your money in government bonds, yielding 6%. The same $25,000 would be worth only $107,297, which is a difference of $163,571. Neither of these calculations has accounted for income taxes or brokerage commissions.

Now, let's look at the timid soul who invested $25,000 in CDs at age 40 and averaged a return of 4%. By age 65, that investment would be worth a paltry $66,646.

Michael Jackson - Remember The Time

I have written before about 'How to double our money' ... some will take longer time than others. Those timid souls who at least trusted the CDs, saved some of their money. I hv known many who basically have ZERO saving and some are living in 'credit cards', so to speak.

Right until today, I still have many many(of most of them, actually) who will NOT buy any stocks!! You need to understand that these are your NORMAL souls, they are not only timid ... but not 'enlighthen'. They are VERY scared ... VERY afraid that they will lose ALL their money and go bankrupt!!

They might go hysteria when you ask them ... err ... do you want to invest your money in stock-markets? It is almost impossible to convince them.

Arrrghhh ... why are you trying to con my hard-earned money??! Why are you being such a BAD person? Don't you know how hard I worked for MONEY, my financial commitments and such ... and with this little money in hands, I m NOT going to 'throw it away'!! You ... you ... you are a real gambler, man ... blah blah ... before we could explain the next line, we have given up. Never mind, I m silented.

It still happens to me everyday ... I hv kept VERY silent about it from my surroundings. Many knew I m 'involved'in stock-markets but no one will want to know how I am doing. They never ask ... in fact, they want to GET AWAY from me as all I speak about is stock-markets!! And they are very wary of me ... perhaps I will want to borrow money from them since I m 1.5 yrs inside KLSE and surely lose lots of money(economic downturn?). Perhaps, they are expecting this : It is a matter of time I will go broke. They sympathy with my 'gambling' habits and swear not to get involved with their hard-earned money. No way ... let the millionaires invests, investments are not for us. I m comfortable with my bonds or CDs, ok?

Now ... let us PAUSE for a while. THINK ... what is failing here?

Firstly, we are NOT being taught since young to INVEST. Our education fais badly in this aspect.

TEH : Get yourself FINANCIAL EDUCATION, please. How? Consult me five years later and I will help you(with a fee) to write your personalised financial plan. To begin with, read RICH DAD, POOR DAD.

Secondly, most of those involved in KLSE LOSE money. So many still hold on to the papers they bought before 1997 crash. These people(I m convinced that they are the MAJORITY!!) will paint such a scary picture about KLSE. Never to touch stock-markets blah blah ...

TEH : If you see me going broke someday in this coming bull-run, then you should be very scared. Your fears compounded, I guaranteed. Haha. But, if I m doing well, can I try to convince you that it is NOT that scary la. Stop talking to your aunties/uncles about stock-markets. THAT IS SCARY to me.

Thirdly, the 'herd mentality' in most of us.

TEH : We are so-so normal and I strong believe that being NORMAL is a huge obstacle in investing successfully. Be a contrarian(easier said than done!!!) and hold to our own beliefs is what required.

Fourthly, lack of motivations(plain lazy) and direction in investing.

TEH : When you are in fear of something,you will try your best to AVOID it at all cost. That is what NORMAL herd will do. If you are in fear, how are you going to find the direction in investing in the first place? And without proper direction, could one really find the motivation? So, my humble advice will be : Buy those self-help motivational books. SERIOUS. You need to be motivated and stay positive to go against HUNDREDS around you who are NEGATIVE, especially about stock-markets, ok?

Fifthly, lack of financial-IQ needed to succeed in stock markets

TEH : As many have a very misleading information about stock markets, one fails to see that it is just one of the INVESTMENT vehicles(like unit-trusts, properties etc etc). And as a novice wants to start investing in stock-markets, they get NOT SO CORRECT information from reading many of the books!! They will mis-interpret(or lack of abilities to understand) the information they read.


No comments: