Why Bother to Invest?

How much is the cost of a cup of MILO today? if you compare the current price of a cup of MILO to 5 or 10 years ago, the price would have increased by a large extent in percentage terms.

Make no mistakes, the cost of living in Malaysia has been on an uptrend due to the combination of the following factors:

1) The recent implementation of GST

2) Subsidy cutback by Government

3) Positive economic growth

4) Weak ringgit, resulting in higher prices for imported items

Rising cost of living concerns a lot of people, but there is NOT MUCH we can do to control the external factors. What we could do is to FOCUS our energy on areas that can be controlled, so that we could minimize the negative impact brought by rising cost of living, or better still, we are likely to have a happy life if we can learn how to benefit from the rising cost of living.

Rising cost of living will erode our purchasing power, if we take 6% yearly inflation, your purchasing power will be halved in 12 years time based on rule of 72, which is scary. It means if your capital generate zero return or return that is below inflation rate, the value of your money will be eroded in the future, guess what would happen to our quality of living? financial security? what about our financial freedom? can we still finance our kids' tertiary education? do we still blame our government?

I am sure you could picture the future challenges brought by rising cost of living. Hence, one of the key objectives in investment is to generate return that is EQUAL to or HIGHER than inflation rate, so that we could preserve or increase our purchasing power.

So if your return is 8% and inflation rate is 5%, your net return is positive 3%!  You should be able to sleep well knowing that your purchasing power has increased.

Although we are aware by now that we must aim for return that is higher than inflation rate in order to increase our purchasing power, is it easy to achieve a sustainable positive return in reality?  This is the question that we will explore in the future..