Millionaire math: getting investment right

Article  by  Nipapun Poonsateansup, CFP®, Freelance Financial Planner


Almost everyone wants financial success, but most of us overlook the best way to achieve it. The secret to building wealth is effective management of the money that’s already in your wallet. It’s not so much about earning more but about saving more, then managing this savings to achieve higher returns.


Because savings is the foundation of wealth, it’s important to ask yourself whether you will save the money left over each month after paying all expenses, or instead spend what is left after you allocate savings. There is a big difference. Which of the following two equations best describes your approach?


                    1.    Income – Spending = Savings (spend first, save what is left)

                    2.    Income – Savings = Spending (save first and spend what is left)


Number 2 here is the right equation to save.  Start by deducting the money you aim to save, then spend the remainder. This method ensures that you’ll save some money each month.


But this approach won’t necessarily ensure that you become wealthy.  To develop wealth, you need to invest part of your savings. Thus the equation for wealth goes like this:

                3.    Income – Savings – Investment = Spending

After you deduct some of your income for savings, you set aside another part to invest. The goal of investment is to make your money work for you by earning an ever-higher return.


One basic rule of investment is that the sooner you begin, the more you will gain. The magic of compounding means that the investment gains you receive this year will earn their own gains next year. Your wealth might grow faster than you expect. The investment period is another factor to be considered in estimating returns. The longer you hold an investment, the more it will earn. For these reasons, it’s crucial to avoid procrastination if you want to be successful in growing your money.


But before you begin to invest, it’s important to assess how much risk is appropriate for your needs and conditions. Nowadays, financial institutions give each investor a questionnaire to fill out to assess their risk tolerance. This form can help you choose the types of investment that are best suited to your own individual lifestyle and investment goal.


Keep in mind that different types of investment provide different returns and that the return depends on risk. A lower-risk investment will provide a lower return. You have to accept a higher level of risk to get the chance to earn a higher return. And risk doesn’t just mean the risk of a lower return. It also means the possibility of a loss.  That’s why experienced investors say there’s no such thing as a “free lunch.”


To reduce risk, you should never try to achieve a high return by depending on only a single type of financial asset. Your investment needs to be properly allocated across a portfolio of assets having different levels of risk ranging from low to high.


Of course, an investment portfolio itself will have an overall risk level, whether low, medium or high, depending on its mix of assets. Typically these assets include bank deposits, debt instruments (e.g., bonds) and equity instruments (e.g., stocks). Here are different investment portfolios at each of the three levels: 


  • Low-risk investment portfolio: 20% equities, 40% bank deposits, 40% debt instruments
  • A medium-risk portfolio: 50% equities, 20% bank deposits, 30% debt instruments
  • A high-risk portfolio: 80% equities, 10% bank deposits, 10% debt instruments

You can also manage your investment portfolio in part or in whole using mutual funds.


Every investment carries some degree of risk. Risk is especially high in the case of complicated assets that aim to achieve high returns. To make the right investment decision, an investor needs to have comprehensive understanding and skills, full information and a good strategy. If you don’t feel confident about doing this yourself, you can consult an investment expert or personal financial manager. With a good advisor, you can develop a sound investment and financial plan that matches your needs and life goals. Planning is the way to reach a brighter financial future.ซึ่งคุณสามารถจัดพอร์ตการลงทุนของคุณผ่านกองทุนรวมได้ด้วย