At 12.08% per year, your money is doubling every 5.96 years and RM1,000 invested a month would grow close to RM1 million in just 20 years.
Most of you will probably think like this.
12.08%? Maybe.
Risk free? Impossible! No investment is 100% risk free!
Well, according to Adam Khoo in his book “Secrets of Self Made Millionaires”, it is entirely possible!
However, you cannot achieve this by investing in individual stocks, or simply choosing any unit trusts funds. Instead, Adam Khoo suggests this - invest in the whole of the US stock market!
"What?! Are you nuts?" you exclaimed.
Well, here’s a fact. The US stock market averaged an annual return of 12.08% per year for the last 20 years. This of course does not mean that every single stock in the stock market went up by 12.08%. It’s the average we are talking about.
For the uninitiated, stock markets are actually measured by an index. An index is a portfolio of stocks that is designed to represent the whole market. The US stock market is represented by many indexes, but the most popular is Standard & Poor 500 Index (S&P 500). This index consists of 500 of the largest companies in the US stock market and represents over 80% of the total stock market value. So, this index actually indicates the average price of all 500 largest companies in USA and can be said to represent the overall performance of the whole US stock market.
If we look at the S&P 500 index graph from year 1952 to 2003, we can see that it keeps moving up over time. Yes, there were some ups and downs, there were bulls and bears, but overall it keeps going up.
This could be due to inflation as prices always increase over time, and this include stock prices. Secondly, due to the inevitable population growth, companies will always have more and more people to sell to so there will be increase in profits and therefore, an increase in stock prices too.
Adam Khoo says that if we were to invest in a mutual fund that tracks the S&P 500 index (aka Index Fund) and keep investing, in the long term, we will have 100% chance of gain and zero chance of loss!
The key word here is LONG TERM. And long term means at least 10 years and above.
It seems the longer you invest, the lower the risk. If you invest for one year, you have 20% chance of losing your capital. If you invest longer for 5 years, your risk of loss is reduced to 10%. But if you invest for 10 years and more, the chances of losing is virtually zero! In other words, you can only gain and profit by investing for 10 years and more.
According to Adam Khoo, you can buy the US Index Fund through online brokers available at Ameritrade.com, OptionXpress.com, or etrade.com. Just open an online account, send them the necessary documents and transfer funds into your account from your home country.
Another alternative is to buy Exchange Traded Fund (ETF) that tracks the S&P Index 500. ETF is a kind of investment security that is constructed like a mutual fund but trades like stocks. It charges lower fees and can be bought or sold anytime of the day. You can buy ETF through online brokers at interactivebrokers.com.
Well, what do you think? Would you want to invest in the US Index Fund if you have that extra cash every month? With the stock market falling to an all time low, this may just be your golden opportunity to buy cheap and make huge profits in later years.
Now I am not an expert on investments. I only learnt about this from the Adam Khoo's book I mentioned above. If you are an expert on this, please comment and share with us your opinions and suggestions.
No comments:
Post a Comment