Need For Speed: The Time Value Of Money [Infographic]
This article is sponsored by Securities Commission Malaysia, under its InvestSmart initiative.
The most fundamental key to investment is to know that your money has a “time value.” Simply put, a Ringgit you receive today can be invested and grown to more than a Ringgit after some time. Understanding the time value of money will bring you far in your investment journey.
The infographic below highlights the importance of time value of your money, and how it will benefit you in the long run.
Everyone has different financial goals that are expected to be fulfilled at different stages of their lives. More often than not, we have more than one goal. Therefore, it is important for us to identify these goals, the timeline and how to achieve them.
For a short-term objective like saving up for your housing down payment, first you need to know what your goal is. Are you planning to buy a property that costs RM500,000? This means you will need to save up at least RM50,000 in cash. Next, you need to decide on your timeline. How much time will you give yourself to save up that amount?
Know Your Timeline
Knowing your timeline will also help you in deciding the best investment vehicle to put your funds into. For a short-term goal like this, a five-year period should be sufficient.
Investment is also closely related to risks. Knowing your risk appetite will help you allocate your assets wisely. The longer your time horizon is, the bigger the risk you can afford to take. Having a low risk tolerance doesn’t mean you stay away from higher risk investments like stocks. It just means that you allocate lesser assets in high risk investments.
With time on your side, you can use the power of compound interest as leverage. The longer your money is left to be compounded to the rate of return of a particular investment or fund, the faster your fund will grow.
Knowing the difference between purely saving your money (stashing it in a savings or fixed deposit account) and investing your money (in higher yield investments), will get you closer to realising your financial goals.
Dreaming of fulfiling your financial goals? Here is why it’s crucial for young investors to get started as soon as possible.
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