The curious case of GOLD - A Gold bubble?

Gold price has dropped significantly the past few months hitting a low of $1180 before recovering back to $1235. Gold price was at a high of $1837 in 2011. That is a 33% drop till now.

The above shows a 20yr chart of Gold. The recent drop is the worst in 20 years. Back home in Singapore, if you notice, there were already signs that Gold had formed a bubble and a crash is coming. How do i know?

The answer lies with more and more people without financial knowledge are investing in Gold. In Singapore, we saw an increase in the number of  firms who promise a guaranteed return if you invest with them. These firms typically use Gold as a luring point and attract people to put their money with them. As Gold is a rather safe asset and a hedge for inflation, nobody thought that Gold price will go down. The marketing point was that as long as there is inflation and prices are going up every where, then Gold price would go up also.

Before the recent huge fall in Gold prices, some of these firms promising a guaranteed return on Gold investment shut down and the owner disappeared. This left investors stranded and they lost all their money. Examples of 2 such companies in Singapore are Genneva Gold and The Gold Guarantee. With cases like this happening, it gives us a strong hint that Gold prices are at unsustainable levels  and the bubble might burst soon.

Watch this video to find out more on the recent Gold scam in Singapore by The Gold Guarantee:

)

Family losing close to a million in the Gold scam? It is really happening. 

You'll realise some investors are old people and most likely they do not know anything about Gold. Its quite saddening to see how people lost all their savings and money to firms like this. It is important to have knowledge and educate yourself on the financial instruments before investing. You'll save yourself from all these scams. 

Then the question is why would people invest their hard earned money with these institutions? Most likely is due to greed of having higher returns. These institutions can promise a guaranteed return of more then 10%p.a. In the first year you may get your returns as promised but the next following year, they may disappear along with all your money. 

The next bubble? Maybe housing bubble in Singapore and some parts of Asia. No one knows for sure but i do know that more and more firms are into property investments similar to the Gold case. This is something to be aware of. These firms are promising 12% return PA investing in properties. Watch out for similar scams like this. 

A video to share - If the World Was a Village of 100 People

Saw this video and thought it would be good to share with readers of this blog. Its a really meaningful clip. Enjoy!

How the rich manage their money that the poor and middle class do not - Part 2

In Part 2, i will show you various scenarios of how a person wealth can increase over time if he invest and also how a person's wealth can decrease if he doesn't invest.

The first scenario: Two person starting with $10000 capital and no extra savings for the rest of 20 years

This comparison shows two person, one who doesn't invest and the other one invests. First person as seen in calculation one has their money eaten up by inflation (3% average inflation rate for Singapore). By the end of 20 years, his money is almost halved. It takes approximately 23 years for your money to shrink by half if inflation rate is 3% on average. Person 2 invests his 10k at a annual return of 10%. By the end of 20 years, his 10k has increased to $73281. That is 7X in 20 years.


2nd scenario: Two 25 year old starting out with a capital of $10000 each and saves $500 monthly.

Person A who does not invest will end up with $95578 when he is 45 years old and person B who invest at 10%p.a ends up with $456,129 at age 45. That is 4 times more as compared to a person who doesn't invest.

3rd scenario: If person A saves double at $1000 but still doesn't invest

Even though person A saves $1000 which is double of person B, he still has lesser money than person B who invest. This shows that even if you save more but don't invest, you will still be worse off. That is the reason why some people who save and spend little are still poor when they are older.

How do you become a millionaire in 15 years?

If you start at 25 years old with 10k, you can be a millionaire by age 40. Just save $2500 every month and invest at a return of 10%p.a. Is it possible to save $2500 every month? I would say its quite hard unless your income is very high which is unlikely if you're in your 20s. The solution? Increase your investment rate of return to more than 20% p.a and you just need to save roughly below $1000 and invest it. 

Conclusion

To be rich, learn to increase your investment rate of return and save more. If you can achieve both at the same time, then you'll shorten the time to be a millionaire. If you do not invest above the rate of inflation which is 3%, then your savings will shrink due to inflation. 

To find out how long it takes your money to double, use 72 divide by the rate of return. For eg, 72/24=3

This means if your investment return is 24%p.a, your money will double in just 3 years compounded.

To find out how long it takes your money to halved due to inflation, use 70 divide by the rate of inflation. For eg, 70/4=17.5. This means your money will devalue by half in 17.5 years if inflation rate is 4% on average.

To read part one of this series, click here: 

How the rich manage their money that the poor and middle class do not - Part 1

All the above calculations are calculated using a compound interest calculator provided by the CPF board of Singapore. You can access it here: http://www.cpf.gov.sg/cpf_info/calculator/Compound_Calc/comp_calc.asp