Hi Guys, Thomas here!
I am sure no one wants to work from 9 to 5 every single day until the day we are dead.
We want to speed up our savings though investment like in the real estate market or the stock market.
Wishing one day they can grow on their own so we can stop working and enjoy.
The question is which investment suits you?
In this video, I will share four things that you need to know before investing.
Best part is it is super easy to understand and it can apply to any investments.
If you are new to this channel, my name is Thomas C Chan
and this channel is about financial growth and tips that you can saved more in Canada
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The first one is Time
Many people focus on the investment product itself but not a lot on the why.
Investment is merely a vehicle that helps to achieve your goal.
So first, ask your self why are you investing?
What are you going to do with the money?
And how long do you want to accomplish this goal?
Think about traveling, once you set a destination, then it's much easier to select which vehicle to travel.
Some choices are safer than others, but it might take a much longer time as well.
I also recommend to break it down into short term, mid-term, and long term goals.
I usually set short goal within 2 years, 5 years for midterm and long term goal is for 10+ years.
For example, John is 25 years old.
He wants to travel in 6 months; Having a place in 5 years and retire comfortably in 30 years.
Since he needs the money in six months;
something guaranteed like a term deposit or high-interest saving account might suit his needs
Versus retirement is 30 years away, stocks or real estate market will be a better option.
We always say the higher of return, the BETTER!
But how does the number really work?
We have Tom and Susan here. They invest at the same time with the same capital.
And every year they put in extra $10,000 dollar into their investment.
Tom's investment gives him 2% return per year where Susan is at 10%
In the first year, there are much different in terms of the interest gained.
But fast forward to 20 years.
With the power of compounding, it will create a very big difference
In today's market, 2 percent return can be founded in the fixed income such as term deposit or government bonds.
For stocks, the historical average return for US stock market is around 9.8%
But remember the higher the return means also the bigger the drop.
Take bitcoin for example.
If you have one bit coin back in 2017,
it gives you 1400% in return but it immediately drops 75% (from the peak) within a year.
Key is to understand your tolerance and do your homework
Third is taxation.
The taxman is always the smartest and most hard-working person in the room.
They work 24/7 365 days a year. And always knocking at your door for money.
There are tons of tax name but I simplify them into three groups.
Tax now. Tax later and Tax never.
In my last video, I talk about the power of taxation.
How you end up losing 1 million dollars in investment in a tax now situation.
Smart investors always try to push the tax-now to tax later even to tax never.
Think about Inflation is an invisible tax.
You cannot see it but it takes your saving slowly as time goes on.
I remember 20 years ago, I always enjoyed going to Macdonald.
I remembered I could still use my coins to buy a Big Mac.
Last week, I went again, but this time it cost me almost 7 dollars.
That means I need to spend 3 times more to buy the same burger.
If I need to make 60,000 to maintain a living.
With a 2% inflation rate per year for the next 20 years,
I need to have 90k to keep the same living standard.
In Canada, the average inflation rate is between 2-2.5%.
And that’s why for long term savings,
you need to invest in some where that give yours more than 2%.
Let's do a quick summary here.
We need to figure out the time and the rate of return.
And minimize the taxation and always make par with inflation.
Once you understand the formula, it's much easier to choose your investment vehicle.
I hope you like today's video.
By the way, how much is the Big Mac in your city?
Leave a comment below!
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And I will see you in the next video!