Equities: 13% p.a. is DIFFICULT to achieve in the long-run for MOST investors.  Please bear in mind the 13% p.a. assumption is compounded over a long period (e.g. 20 years or more for retirement purposes) and for the whole equity portfolio, not just a few outstanding stocks (what's good in the past ten/twenty years may not be equally good in the future - very few companies can maintain outperformance for more than 20 years). Yes, some people may argue that their track record over the past ten or twenty years were more than that...all I can say these investors are GOOD (or lucky?)

I will give you an example why it is difficult to achieve 13% p.a..

Let's look at KLCI (a composite index of "leading" companies in M'sia) or now, known as FBM-KLCI (I am using Yahoo Finance data - unable to access full Bloomberg data on my current PC). KLCI excludes dividends (so you can add another 2% to 3% to compounded returns stated below)

(i) Based on the longest data available on Yahoo Finance, the KLCI data starts from Dec 1993 (which happened to at the tail end of the 'super bull' in 1990s)...KLCI was 1275 (Dec 1993) and 1447 (Aug 2011) -> annual compounded return of 0.72% p.a. over the 17.67 years. Of course, it is based on the last peak (or near the last historical peak) to current level.

(ii) Let's use 2000 to Aug 2011 - return. KLCI was 812 (Dec 1999) and 1447 (Aug 2011) -> annual compounded return of 5.08% p.a. over 2000-current.

(iii) Excellent market timer - bought at bottom in Aug 1998 to Aug 2011. KLCI was 303 (Aug 1998) and 1447 (Aug 2011)-> annual compounded return of 12.81% p.a. over the period. So, get a 13% p.a., you have to be really, really good.

For my own equity portfolio, I am assuming less than 10% (it's blended with heavier weighting on emerging/Asia markets). I consider myself to be quite a decent equity investor since I am semi-retired (still involved in finance/investment industry for the fun/thrill of it) and can live comfortably on the dividends from my equity portfolio.

Please bear in mind - even for well-run sovereign funds such as GIC (blended:equity, fixed income, etc) achieved only 7.2% over a 20-year period (7.6% for a composite portfolio of 70% global equity and 30% global bonds) http://www.gic.com.sg/data/pdf/GIC_Report_2011.pdf .

I just do not want fellow forumers to be using unrealistic returns for their retirement planning and get disappointed in the future. Nevertheless, I do like most of your replies and writings 
In the article below, over 1985-2007, annual returns based on KLCI was 8.6% (+2% dividend yield = 10.6%).
http://biz.thestar.com.my/news/story.asp?f...87&sec=business

Yup yup - agreed bro Chabalang. No one can argue with proper statistics and law of averages. Thus, my caveat is as always "personal expected/assumed average pa returns"

I dont buy much stocks but when i do, tend to be lucky (touch wood) maybe coz i wait for blood/suicides nowadays, or at least when i hear people swearing off stocks and not blindly "buy equities" based on Asset Allocation (which i do use just to allocate $) / re-balancing.
Paid lots of "tuition fees" to the market in my younger and dumber daze. Now still dumb but not THAT dumb 

BTW, 2008 crash - i put most of my $ into LPI (sold liao last month, hit my Trailing Stop Loss thus forced to realize profit) and PBBANK (still held now) + TWRREIT (still held now) (Dec 2008 till 1st qtr 2009). These stocks.. phew.. it's not just a matter of timing / value but also filter/selection of stocks/equity funds that's the kicker. Much much more than 12.81% or my own 13%pa (CAGR) target. Touch wood touch wood.  i was eyeing these 3 for awhile before end 2008, especially LPI & PBBANK. TWRREITs was something "new" since REITs were kind of "new" in MY market - lucky shot for that i guess.

1997 - 1998 double-dips, i was also lucky in the sense that i sold out before the currency crisis (stocks and equity funds) as there were plans for those $ and i didnt have that much $ to monkey around with. God works in mysterious ways 

Equity funds-wise, i'm lucky in the sense of buying with more $/EPF during "downs" due to value-averaging component of my programmatic approach
+ mid-long term trend-based buys after recovery and in new accumulation stage.
Thus, overall equity fund returns goes up (based the donkey XIRR formula in Excel lar coz i'm way too lazy to go calculate one by one and do a crazy consolidated CAGR).
Note - the only DCA i do is just to leverage on the "agent investment", which is at NAV without any service charges. Kiamsiap / cheapskate lar me bro, how to say no to this?

To each his own - plans & map to investment success, as everyone has very different risk appetites, focus and experience/skills. The main idea i'm trying to share is to HAVE A PLAN + EXECUTE the plan + TRACK, else how to manage and edit the plan .

chabalang

Very good points.

And i do agree with the difficulty in achieving 13% compounded returns over a long time.
10% is more achievable.
i think temasek did much better

17% since 1974....thats taking into account them getting burnt in US equities in 2009

http://www.temasekreview.com.sg/performanc...der_return.html

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Added on September 6, 2011, 7:49 am

Did similar to you in 2009.

i bought into a few stocks only, still holding till now.
Predominanyly dividend stocks- Boustaed(rm2.3) and Panamy.(Rm9.3)
Also coastal(Rm0.80)- thought it was very good value.

Still holding till now

But i still cant decipher Unit trusts trading.........  

Hhehe - Prophetjul, i also dunno how to trade unit trusts/mutual funds short term. I'm just into 5 to 16 years long trades (in the vein of "in the long run, we're all dead", thus not buy and hold buta)

IMHO, for a person who's investing in Stocks directly already, mutual funds (equity & bond funds) can be picked up sup sup water.
Similar steps required.
1. Filter based on performances, sectors, domestic/foreign, fund's directive/investment approach, etc. to fit your Asset Allocation gap to fulfill
2. Create entry and exit plans / methodology
3. Execute, track and manage based on (2).

IMHO, the only major difference is the SWITCHING game instead of "selling" / redeeming unless U want to cash out.
In an accumulation phase of our investing lives, SWITCHING to/fro bonds/equities is recommended - see the Excel i posted in PMv2 thread or Mutual Fund thread. If cant find, drop me a PM.

In that Excel, i simulated Mutual Funds (with 5.5% service charges + $25 SWITCHING charges) VS Stocks (0.55% cost per buy, another 0.55% per sell) with lump sum $5K, $10K and $20K (something to that effect) and going in/out stocks or SWITCHING between equities and bonds for like 6 to 10 times just using that initial capital + assuming growth/returns of x%.
Bottomline:
As a long term vehicle, mutual funds do have their place, even with the service charges of 5.5% and yearly mgt fees because the transaction costs are less than stocks' in/out costs in the long run + for beginners with low capital (eg. $100pm), the cost is lower than stocks' transaction cost as a $ of the value transacted.

Whoops - i just checked, that post was in response to your Q . Dang my memory, i'm getting old 
http://forum.lowyat.net/topic/1299169/+2182

i find in direct stocks trade, i am in control. 
in unit trusts, i find the difficulty in the word 'TRUSTS'! 

In direct stocks, i can research with focus whereas in UT, i dont know what the trading bythese
socalled UT managers are. They could be biuying ans selling to their friends!  Who regulates?
i know EPF sells/buys to/from PNB, LTAT, etc.  A very small merry go round
TRUST?  thats a diffcult one..............

BTW banks in euroland is in trouble........even HSBC is gone back to sterling5.0 

UTs: yeah - trust a bit hard, here.
What to do - until i can take out chunks of $30K from EPF, i can only "afford" to do UTs, not self-directed stock investments using my EPF A/C1 $
Know the system, work/milk the system  - lemon and lemon juice thinggy

EPF's stock trading: Yeah - those who are "following" EPF's in/out of stocks are going to be severely confused  Left hand rep buy, right hand rep sells  Winner = bursa + securities firm (trading charges)

HSBC is now pound sterling5? hm... me beginning to smell wounded animals.. not much blood gushing out yet.. waiting hungrily for value lelong  but like what Chabalang said earlier, hopefully not bad until we lose our working stiff jobs here

A lot of us tend to make financial resolutions such as: I want to make/save more money than I have last year.

I read somewhere that this is ineffective as there is no solid target.  Make a resolution such as I want to increase my net worth by 1% per month.  Then make records every month and track your progress.

I've been doing this since last year and it's really fun and informative.  It gives a perspective of seeing your debts decrease while your assets increase.  It's achievable enough yet rewarding.  1% per month translates to about 12.6% a year.

I'm trying to stay on track this year but getting a car since last year makes it difficult.

ideas and wants are intangible.
When put on paper, planned, executed and tracked - then it becomes tangible and real through one's focus.

IMHO - i wonder why most people do KPIs, goal settings, annual management budget, etc. in their professional lives & management but not personal - these make one heckuva growth boost if applied to personal management too.

Bro, just a thought - in addition to your monthly net worth growth/shrinkage tracking (which is like a company's balance sheet), U may also want to track your personal Debt/Equity and Acid Test ratio. Easy to see whether the biz of your life is highly geared (dangerous if there's any hiccups) and abilitiy to pay back at an instance - like a "management cockpit" 

not as high as can be bro (hitting 40s soon) due to:
a. younger & dumber days activities
b. divorce.. yeouch! effectively more than 60% gone there due to pay out & rebuilding a new home for myself & my little girl
c. worker ant / lemming

Worried "someone" (no, NOT ah longs - worse) is looking here as i used my real name (and try pressing me for more) , thus, if i may give U an idea (but not exact figures) + percentages of asset allocation

a. My current net worth is less than yours if U keep growing it at such rate until U reach my current age
Assuming U've been in biz for 5 years to create your net worth posted earlier, U'll definitely reach my current net worth by the time you're 38
If U've been in biz for less than 5 years (say 1 to 3), holy smokes - U'll cross my current net worth in about 5 to 6 years. 

b. Aim to hit >$3M in real assets (ie. excluding cars, furniture, etc.) by the time i chose to retire - achievable all else being samey samey (ie. markets up/down, no pay increase, no bonus increase, nada).
Lala-land Aim: to hit >$6M and leave at least $3M to charities and family.

c. Asset Allocation held currently.
Pls note that this is NOT my planned allocation - i allocated resources to buy assets via VALUE (buy good Companies' stocks during fear) or PROGRAMMATIC (every quarter using DollarCost + ValueCost averaging) but somehow it's all stuck in bonds & FD since mid 2010 .
Thank God since now it's a dip - mega sales coming soon.
[attachmentid=2416115]

If U want more details and discussions (i'm all ears to learn from a biz person's perspective - btw, i'm also in the systems and solutions line BUT auto industry - worker mar), "private message" me  .

Interesting thought process....You remind me of some other forumer I know....I mean that in a good way.

I'm curious....you have no properties in your portfolio, if I followed your posts correctly.... Care to share why?

Interesting thought process....You remind me of some other forumer I know....I mean that in a good way.

I'm curious....you have no properties in your portfolio, if I followed your posts correctly.... Care to share why?

No la, I remember he said he has two physical props, plus REITs - paper props.

My thought processes are definitely "interesting" to say the least, sometimes frighteningly bizarre too (think happy grass psychedelic colors trip) 

On a more serious note - got ar, but
only 1 "full fledged" investment property
+ "semi-fledged" investment property (renting out rooms of my home - think of it as live-in landlord ) paying more than 50% of my mortgage
+ REITs (office, plantation and retail/education/office mix) which i consider equivalent to properties without leverage (yeah yeah - property game's turbo-boosts is leverage but i'm very mindful of my D/E ratio, chicken lar)
Reason for being a chicken - banks / financiers may "call upon the full sum anytime" if i read my mortgages correctly. Ya ya - "never" happened before, same in US until 2007-2008 

I'm an advocate of Asset Allocation across at least 3 classes - Fixed Income, Equities (biz) & Land (properties & REITs). I only post what i'm doing from my own reasoning, thus i'm definitely in properties too .

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Added on September 7, 2011, 8:11 am
Good lord bro Monsta2011 - U have memory like an elephant. 

i am 49 years young.

Using Wong's spreadsheet

Assets

a) Fixed Income = 1.6 mil
b) Stocks, Equities = 1.2 mil
c) Investment Properties = 0.9mil 
d) Alternate = 1.35 mil

Liability

a) property = 0.15 mil

Income = 25k per month

Insurance = 1.2mil life cover

i plan to send my two children 12 and 16 years for overseas studies. - set aside Rm1mil each present value.
Plan to retire 58 years old with annual expenditure of Rm120k present value.

Is this achievable?

Hi prophetjul,

I am very curious how you can accumulate wealth of rm4.9mil excluding your house on an income of 25k per month. Care to share how much you earn say at 40 year old?

Interesting.....very interesting....could u share how many % of your networth is allocated towards properties?

do u find that your potential returns could be a lot higher if u use the power of good leverage?

seems to me that most of your portfolio was constructed using pure hard earned cash? pls correct me if I'm wrong.

Bro Propetjul - may i "main tikam", $14K+/-?

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Added on September 7, 2011, 11:46 am

My % of net worth in properties is about 28% held and 33% held + allocated $ to buy in.

IMHO, yeah - leverage is good up to a point and depending on the buy, whether good value or main tikam.
More than that point - i'm very very worried if my D/E is like 2

Yup yup, mostly blood & sweat $ saved used for investment. Thus, i'm a firm believer in basic $ management first, THEN risk mgt & investment. Without the basic $ management, forget the rest coz sooner or later, big kaka will happen.

well, using your lingo - u seem to be very well versed in money management & personal finance 101

I would think that u r more than ready to dwell deeper into the arena of leverage, to increase your wealth exponentially, no?

Oo i do leverage for that full fledged property but up to a point lar bro.

I'm waiting for kaka to hit the fan (not IF, but a matter of WHEN - for sure to happen ) OR inflation STARTING to go nuts before utilizing more leverage, and again, up to a point of my personal comfort level (D/E up to 1 max)

if u dabble into leverage / real estate - D/E wouldn't really be a concern, no?

at most - it should be D/I

plus - depending on your real estate portfolio strategy - your D would constantly be offset by I's coming in from rental / cash flow plays.

m2c.

hehe - my personal gauge (to manage my life biz) is similar to companies/biz i'd invest in.
ie. ROE >=20% consistently for several years,
generally D/E<=0.5  unless REITs <=0.8 or special circumstances, but no matter what D/E <=1
Cash flow +ve consistently

IMHO, only looking more at D/I than D/E is dangerous for me in the sense that the I may not be consistent.
eg. rental where there may be breaks in the contract every 2 to 3 years
OR worse, running off (yar yar, filter for good renters, kaka can still happen)

Heck - look at the good ol US of A.
They kept stating that their debt is sup sup water compared to their GDP until...

No right/wrong yar - i'm just more chicken shit in this sense  UNTIL i can learn and have better proven methods

if u have time, pls do log on to propertywtf.com.my