In 1997, this KLCI touched the low of 300 points briefly. Today, the KLCI is about 1,100. From 1997 to 2009, the KLCI has compounded at 11.4% per year over the 12 year period. To achieve this 11.4% return. The KLCI was a low of 850 at end of 2008; giving a CAGR of 9.93% over the last 12 years. To achieve these returns, you would have to have invested a lump sum at the trough of the market in 1997.
What of the performance of the average investors?
This is the average guy. He is the guy who invests regularly whenever his savings allow him. He is not among those who achieved the 11.4% compound annual return.
Let us make this assumption to facilitate some calculations. His dollar cost averaging over 12 years approximates to a lump sum investment in the market from KLCI 700 to KLCI 1100 over 6 years. His gain is the equivalent of compounding annually at 7.82% over 12 years. When the market was at its low at end of 2008 (KLCI of 850), his CAGR over 12 years was 3.29%. (KLCI 700 is chosen as it is the average of the trough KLCI of 300 in 1997 and present KLCI of 1100.)
How can this average investor improves on his investment returns? More specifically how can he improves this return to 10% annually? Or, to above 15% annually and consistently?
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Return Rate (Discount Rate / CAGR) Calculator
http://www.moneychimp.com/calculator/discount_rate_calculator.htm
Total return from a stock
= (Capital appreciation + Dividend + Profit from Sale of Stock)/Amount Invested
= (Capital appreciation + Dividend + Profit from Sale of Stock)/(Value of Stock + Cash)
Total return from a portfolio
= (Capital appreciation + Dividend + Profit from Sale of Stocks)/Amount Invested
= (Capital appreciation + Dividend + Profit from Sale of Stocks)/(Total Value of Portfolio + Cash)
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