Tuesday, 7 December 2021
Written by Royce Tan, Chief Market Insights Officer of GAX MD
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THE keynote address that you have just watched has gotten you all hyped up about the upcoming flagship smartphones by your favourite manufacturers.

Though you have just spent RM6,000 for a spanking new phone just 11 months ago, it just doesn't look as good anymore, because now there is one which has a better camera, a better processor and a new design.

More than its functionality, smartphones are becoming more of a social status. That’s what marketing does. It makes you want to buy things, it makes you want to get things you don’t need. And if you have a knack of splurging on things that you don’t need, that’s just bad financial decision making.

In this article, let’s explore the actual cost you incur when you buy a new smartphone, especially if you’re the type that needs to get the latest model every year. Let’s say the latest flagship smartphone starts at RM4,899. That amount, if left untouched for 30 years in an investment that can generate a return of 5% annually for 30 years without any extra contributions, will see the figure grow to RM21,173.20.

Back in 2017, Apple CEO Tim Cook said that the price of an iPhone, if broken down monthly, costs less than a cup of coffee a day at the “nice coffee places”. He’s not wrong, because a phone worth RM4,899 works out to RM13.42 a day, which could get you a nice cup of coffee or a bubble tea, depending on your preference.

So, if you spend RM4,899 for a new phone every year, hypothetically, that’s a net expense of RM146,970 in 30 years. If that same amount would have been invested, a mere 5% annual return will see the amount grow to RM327,248.35 in three decades, thanks to the power of compounding interest. If it were to be a 10% annual return, you would be looking at RM812,979.94.
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Compounding interest works in a way that returns are earned on your principal amount and also the gains you have made in the subsequent years. So, if you start to invest with an annual return of 5% on a principal of RM100, the return is RM5 in one year. The second year will be 5% on RM105, which makes it RM5.25 and it just snowballs from there.

And it is very important to start early to take advantage of compounding interest, even if the quantum is smaller. To illustrate, investing only RM100 monthly for 30 years with an annual return of 5% sums up to a final figure of RM80,158.81.

Another investor, who may be 10 years late in the scene, would decide to double down on the investments, with RM200 a month for 20 years. This would sum up to RM79,888.95 at the end of the period.

Compounding interest is an effective strategy if you are planning to invest over the medium to long-term. In order to maintain diversification while reinvesting your returns, the allocation must be appropriate and this is where the MYTHEO (a digital investment management provider) algorithm comes in, which reviews the asset allocation of each user based on their risk profiles and appetites and reinvests in the appropriate allocation tailored personally to each investor.
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And it is very important to start early to take advantage of compounding interest, even if the quantum is smaller. To illustrate, investing only RM100 monthly for 30 years with an annual return of 5% sums up to a final figure of RM80,158.81.

Another investor, who may be 10 years late in the scene, would decide to double down on the investments, with RM200 a month for 20 years. This would sum up to RM79,888.95 at the end of the period.

Compounding interest is an effective strategy if you are planning to invest over the medium to long-term. In order to maintain diversification while reinvesting your returns, the allocation must be appropriate and this is where the MYTHEO (a digital investment management provider) algorithm comes in, which reviews the asset allocation of each user based on their risk profiles and appetites and reinvests in the appropriate allocation tailored personally to each investor.

As the saying goes, the best time to plant a tree was 20 years ago and the next best time is now. Similarly for investments, the best time to invest was yesterday and the next best time is now.

Invest in a moment with MYTHEO.

*The writer of this article is still using an iPhone XS Max since 2018 and has no plans to change it anytime soon. As long as the phone still functions well and is not laggy, it is still good to go for the writer.

He has always held on to the belief of “choosing your hard”. Everything in life is hard. Looking at everyone around you using new phones is hard. Not having sufficient savings and investments to retire comfortably in your older days is hard. Choose your hard.

‍This material is subjected to MYTHEO's Notice and Disclaimer.