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Money, Money, Money!

Money, Money, Money!

How is it possible that I can be so confident (some say silly) to afford giving away interest rates of 4% per annum to my parents when I pool funds together for investing in stocks?  Are there some uber secret techniques that I am using?  Or am I just plain crazy?  If it is true, then show me how to make MONEY, MONEY, MONEY!

Most folks do not realize the true returns and sources of revenues that a good stock is able to generate for you that does not require you breaking a sweat!  Here is the breakdown:

1. Capital Returns – Also refers to gain in share price.  This annual return is anywhere between 2% to 12% of purchase price in the Singapore markets.  Normally, the average benchmark for capital returns should be the same as the annual economy growth of Singapore.

2. Dividends – The average blue chip dividend should beat the average 2% fixed deposit interest rates of banks.  Else, most folks would rather put their money in banks than invest in companies.  Hence the annual return is approximately 2% to 7% of purchase price in Singapore.

3. Rental revenues– Most people did not know that they can rent out the shares they own.  However, the problem with this scheme offered by the Central Depository of Singapore (CDP) is that you need to hold at least 50,000 shares to participate.  However, the returns are very decent should anyone wants to borrow your shares.  It is currently priced at 4% of the prevailing price of your stock. So assuming that you manage to rent out your shares for only 3 months in an entire year, you could get about about 1% income.

So in a nutshell, if you stock is performing badly due to the market circumstance (and no fault of its own), you should be able to get at least 4% returns annually.  In a best case scenario where you could also rent out your stocks, you are possibly looking at returns of up to 20% per annum!

So if you pay out 4% interests to your parents in an average performing investment market, and assuming you are making 10% returns, you can effectively increase your returns by almost 6% using other people’s money!  This gives you a net return of 16% (if you include your own portion).

In the event that things do turn for the worse, and you do not make capital returns, the dividends and rental incomes can cushion the fall.  Hence this mindset of investing can allow you to take risks with good potential returns, but with controlled downside.

Hence, it is beginning to sound very true that money makes even more money!  Hence I do recommend kick-starting your efforts to raise capital to begin investment!

For those who are born after the ABBA hit song – “Money, Money, Money”, here is the video clip to inspire you…less the gambling Monaco part.

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