While I was about to drive home today, I was approached by
Leo, our Maintenance Planning Engineer asking me these questions;
“ Sir, I read your article last night about investing P1,000
pesos a month in UITF or Mutual Funds and it
seems the returns were very good. The figures were more realistic than what I’ve
read from other financial blogs since it is based on real figures from the past
performances.“
Leo is referring to my latest post about the email I
received from one of our readers asking questions about investing in mutual
funds. If you didn’t read about it yet, I would love to suggest for you to read
it through this link HERE.
Leo continued with this question;
“If I could invest a little bit bigger amount, say P5,000
pesos, would it be possible for me to become a millionaire within the same 8-year
time frame?”
Well, if this
question were heard by some skeptics and cynics, they would think Leo might be just
dreaming. But Leo is one of those few smart and intelligent guys I know and I
am sure he is serious about his thoughts.
Last year, I
suggested to him to invest in the stock market through the Easy Investment Plan
of COL Financial. He opened his COL account this year and diligently
accumulating shares of his chosen stock every month. He is on target and I know
he would reap his investment benefits on long term.
Back to his 1 million peso question, is it really possible
to gain P1 million pesos by investing P5,000 pesos every month in UITF or
Mutual Funds within 8 years’ time? I cannot predict the future but we can refer
to history by calculating backwards.
Let’s do the calculations.
UITF INVESTMENT
For our UITF investment calculations, let’s have again BDO
Equity Fund as our reference.
Let’s start our calculations starting end of April 2005 up
to the end of December 2012 by using the historical NAVPU of BDO Equity Fund.
Our objective was to invest P5,000 pesos diligently every month. Our formula of
buying our units of participation will be again the following;
No. of
units bought = P5,000 / Prevailing NAVPU
so that if NAVPU today is 416.2342, by using the above
formula, the unit of participation he can buy with his P5,000 will be:
No. of
units bought = P5,000 / 416.2342 = 12.01 units
Using the formula above, his investment’s value every year will
be like the one shown in the table below.
If Leo had invested in BDO Equity UITF starting April 2005 with a
monthly investment of P5,000, his money would have grown to P965,743.74 pesos by
the end of 2012. This is about 107.7% returns from his total investment of
P465,000.00 pesos.
MUTUAL FUND
INVESTMENT
For our mutual fund investment, we will take the historical
NAVPU of Philequity Fund, Inc. (PEFI). For simplicity of calculations, we did
not factored-in any sales load, if there is any, during the initial purchase of
shares.
Same with the calculations we have done with BDO UITF above,
we took the historical NAVPS of PEFI every month-end. With his investments of P5,000
every month, we divided this with the prevailing NAVPS every month-end to get
his number of shares every month.
No. of
Shares = P5,000.00 / Prevailing NAVPS
His year-end investment value would be the product of the
prevailing NAVPS times the current total
number of shares.
The year-end values of his investments is shown on the table below.
In case Leo had invested starting April 2005 with Philequity Fund,
Inc. and diligently invested P5,000.00 pesos every end of the month, his total investment
of P465,000.00 would have grown into P1,097,316.57 pesos by the end of year
2012. That’s an astounding % ROI of 135.98%!
In case he would start investing today with either UITF or
MF, is there a big possibility that he would become a millionaire by the end of 8
years?
My opinion is a definite and BIG “YES”.
Backed by the solid fundamentals and strong outlook on the
economy of the country today, Leo and any Juan dela Cruz who will be diligently
investing for his future will become millionaires and financially free within
the near future!