Why invest ? - inflation , capital preservation or what ?

Inflation - Most of the time, my clients would be asking me why should one invest? Well, there is a lot of reason but most of the time I would tell them investing would be more for hedging against inflation.

Inflation - what figure do we take?
Most of the time a CPI should be ideal if you are just living day to day. It should give us a long term average of about 2.5% to 3% in Singapore.  However, having the kiasu mentality build within me I would like to introduce another index.

The LGI - 6% 

5.3% average increase (Chanel)

Luxury Goods index
https://www.ft.com/content/dbb9319a-fc85-11e8-ac00-57a2a826423e

(Mind you the Daytona inflation rate is even higher)

So which figure should we take?

Well, it really depends on you? what you hope to achieve in life, what you really want to have in life.

If your target is to live a simple life for retirement, u need to have a return of  about 5% to 6% as 2.5% is the average inflation eg : if your expenses is 30k a year it would likely cost you 31k next year so you need to have assets to generate that 1k extra next year to hedge against it.

there are some financial assets SGS SSB etc. which are mean for capital preservation or CPF -OA, SA etc ... these assets are more for capital preservation instead of Wealth accumulation.

I was once joking with my friends - I was telling them if you ever wanted to get yourself a luxury timepiece or a Luxury bag if all you are doing is just putting money into an FD account. you should most prob just go and buy it the next day as the inflation is way higher than the return you are getting from the interest accrued from it.

So the no risk options are actually the riskier options - you are sure to lose purchasing power. Assuming there is no deflation.


What causes inflation? I think the main reason why there is inflation is that as the income level of individuals increases, goods would increase in value as well especially the wants. The needs should not see a massive increase in prices as regardless of how rich you are you would still eat 3 meals a day (for most peoples). However, the wants are the factors that drive up inflation.


What I did ? - I always had a high hurdle rate of more than 6%. Normally my hurdle rates would be set at 10%

The ability to reallocate the cash flow that is being generated by the financial assets or assets channel to him into other assets that meet his hurdle rates would greatly enhance one wealth accumulation phase.

Rule of 72 - if one is able to generate a 10% return annually the net worth will double every 7.2 years.

so a 2 million port will hit 100M in 41 years.

at 12% it will take 34.5 years.

at 14% it will take 29.86 years.

Disclaimer

1) This Blog is intended only for the use of personal portfolio tracking and sharing of ideas. All the investment advice or stocks picks shared shall be view as only my personal opinion only. I do not warren the truth or accuracy of the information shared and likewise all investment activities made should be consulted by your personal financial advisor as I do not have an understanding on your investment objective nor your investment Risk appetite as such I shall not be liable for any of your losses whatsoever howsoever should you decide to invest in any investment ideas or stocks discussed in this blog.