Why should we invest and get more than 5% p.a.?

If you live in Klang Valley like I do, I'm sure you are feeling the pinch with ongoing increase in prices of food, grocery, petrol, etc. The government is declaring that the inflation rate is in the region of 2-4% per annum, but mind you, the inflation rate published was for the whole of Malaysia, inflation rate in the city is definitely higher than the rural area. Below are some data collected and published by ???, suggesting that inflation rate for middle class is in the range of 5-7%.

Now if you feel that your money is very safe with the bank fixed deposit, think again. If fixed deposit rate is at 2.5% and inflation is at 5%, will the value of your money go up or down? If you plan to place all your retirement fund in fixed deposit, chances are 20 to 30 years from now when you retire, you will find that the value of your retirement fund has gone down the drain, easily depreciated by 30%-50%, no?

From another perspective, imagine that Mr. A and Mr. B have a goal of accumulating RM1,000,000 before they retire, say 25 years from now since most people only started saving / investing at 30 year old. Say Mr. A invests into a conservative instrument that can give him 5% per annum and Mr. B invests into an instrument that is more risky but in a long run will give him 12% per annum, how much do you think Mr. A and Mr. B need to invest now in order to accumulate RM1,000,000 in 25 years?

For Mr. A, key the function "=PV(5%,25,0,1000000)" into an excel cell and you will get RM295,302
For Mr. B, key the function "=PV(12%,25,0,1000000)" into an excel cell and you will get RM58,823
Now, i believe there are not many Mr. B around who has RM58,823 to start investing at age 30, not to even mention Mr. A with RM295,302?


Now, there is no free lunch in the world, there is a lot to learn in order to get 10% or 12% per annum, but what we could deduce from this is that it is probably worth spending your time learining how to invest and get that kind of return, the journey may not be as painful as people around you may put it, speak to people who has successfully invested rather people who fail and are ignorant to learn from it. We are living in a world now whereby saving into the bank will no longer make you rich nor comfortable.