Beware of the irresponsible investment promoter!

There is a residential property which Encik Hassan had bought from an investment promoter 10 years ago for RM 180,000. The property is now valued at RM 354,000. Encik Hassan had bought it for investment purpose and NOT for residing.

Encik Hassan is happy with the decision he made 10 years ago because the yield of the property if he sells now, is about 9.67% per annum. How did he get that figure?

This is how: RM 354000 - RM 180000 = RM 174000

                     RM 174000 / 10 years = RM 17400 per year                                  ( return per year)

                     Then , he divide it with RM 180000 to get 9.67%.

However, when his friend Mr. Wong saw this method of calculation, he quickly noticed an error and promptly advised En Hassan that the return is not 9.67%, but actually it is 6.99%.

Mr. Wong informed En Hassan that since the yield of the property in a year is reinvested back into the property for 10 years, TVM method should be used instead,

TVM (time-value of money) is a calculation method used to measure return rate for any investment products that its return are 'plucked' and 'planted' back into the same investment vehicle.

How many of us use the same method that En Hassan erroneously had applied?  Such error can be a costly mistake in a decision making process to an investor who are exposed to various choices of buying investment grade products, either for retirement or for meeting specific financial goals in life.

The last thing that we want to see is investors making decision investing in an investment product that artificially shows higher yield by irresponsible promoters of the financial products.

KNOWLEDGE IS POWER, EMPOWER YOURSELF.