How Safe is Your Investment Return?

Do you want to earn double digit investment return in a year? 50% return in a year or 100% return in a year? How SAFE do you think is your investment return?

Some investors might be chasing for certain company shares with the hope of achieving high double digit return in a short span of time in order to pump up his or her networth. Aiming for higher return is fine, but the investment position could be rather risky if it is done without considering the inherent risk. It is akin to driving and looking at the side mirrors at all times, resulting in higher probability of getting into an investment 'accident'.

Let's revisit the basic of wealth equation:

Wealth= Capital x Time x Return

There are few observations that could be made from the equation:

1) The above-mentioned 3 components are crucial blocks towards wealth building.

2) Capital invested could be big or small amount relative to your investable assets.

3) If return achieved is zero, the wealth equation will not work.

4) If your return is negative, the losses could reduce your networth.

5) While capital amount is important, what is more critical for an investor is to harness the power of compounding interest by earning a sustainable positive return over a long period of time.

Imagine if an investor invests RM10k in a company share and suffer capital loss of 20%, the ending capital will then be RM8k, In order for the investor to recoup the initial capital, a return of 25% is required just to make back his or her money since the capital base is smaller now.

On the other hand, if an investor lost 50%, a return of 100% is required just to make back his or her capital. 

Hence, it may not be a bad idea for an investor to begin their investment journeys by focusing on equity or REIT investment that could potentially generate SAFE, SUSTAINABLE and STABLE return first instead of  chasing SKY HIGH return during the initial investment years.

If we could earn STABLE returns over a long period of time, the capital invested will eventually grow into a decent sum!