STEP 1: Determine your average monthly expenses (needs and wants included).
Let's assume that i need PHP 50,000 a month.
STEP 2: Add Inflation Rate.
I'm from the Philippines, and as of December 2016, the Philippines Inflation Rate is at 2.60% (SOURCE: http://www.tradingeconomics.com/philippines/inflation-cpi)
YEAR | AGE | MONTHLY EXPENSES |
---|---|---|
2017 | 34 | 50,000.00 |
2018 | 35 | 51,300.00 |
2019 | 36 | 52,633.80 |
2020 | 37 | 54,002.28 |
2021 | 38 | 55,406.34 |
2022 | 39 | 56,846.90 |
2023 | 40 | 58,324.92 |
2024 | 41 | 59,841.37 |
2025 | 42 | 61,397.25 |
2026 | 43 | 62,993.57 |
2027 | 44 | 64,631.41 |
2028 | 45 | 66,311.82 |
2029 | 46 | 68,035.93 |
2030 | 47 | 69,804.87 |
2031 | 48 | 71,619.79 |
2032 | 49 | 73,481.91 |
2033 | 50 | 75,392.44 |
Based on the table above, i will need PHP 75,392.44 a month when i reached the age of 50 in order to maintain my current lifestyle.
STEP 3: Annualized it!
PHP 75,392.44 x 12 Months = PHP 904,709.23
Based on the computation above, I will need an Annual Net Income of PHP 904,709.23 in order to maintain my current lifestyle.
STEP 4: Let's review our options in earning passive income!
Option A: Savings Account
BANK | BANCO DE ORO | BANK OF PHILIPPINE ISLANDS | METROBANK | SECURITY BANK |
---|---|---|---|---|
ACCOUNT NAME | Passbook Savings Account | Passbook Savings | Passbook Savings | Regular Build-Up Savings |
SOURCE: | https://www.bdo.com.ph/personal | https://www.bpiexpressonline.com/ | https://www.metrobank.com.ph/ | https://www.securitybank.com/ |
MINIMUM INITIAL DEPOSIT | 5,000.00 | 10,000.00 | 10,000.00 | 5,000.00 |
MINIMUM MADB REQUIREMENT | 10,000.00 | 10,000.00 | 10,000.00 | 5,000.00 |
MINIMUM BALANCE TO EARN INTEREST | 10,000.00 | 25,000.00 | 10,000.00 | 10,000.00 |
GROSS INTEREST RATE PER ANNUM | 0.25% | 0.25% | 0.25% | 0.50% |
The highest Gross Interest Rate in the table above is 0.50% per annum.
In order to meet my target of PHP 904,709.23 Annual Net Income, how much capital do I need?
PHP 904,709.23 / 0.50% = PHP 180,941,846
PHP 904,709.23 / 0.50% = PHP 180,941,846
I will need PHP 180,941,846 to earn PHP 904,709.23 at 0.50% Gross Interest Rate Per annum.
Option B: Time Deposit
BANK | BANCO DE ORO | BANK OF PHILIPPINE ISLANDS | METROBANK | SECURITY BANK |
---|---|---|---|---|
ACCOUNT NAME | Peso Time Deposit | Regular Time Deposit | Peso Regular Time Deposit | Peso Time Deposit |
SOURCE: | https://www.bdo.com.ph/personal | https://www.bpiexpressonline.com/ | https://www.metrobank.com.ph/ | https://www.securitybank.com/ |
MINIMUM INITIAL DEPOSIT | 5,000,000.00 | 5,000,000.00 | 5,000,000.00 | 5,000,000.00 |
GROSS INTEREST RATE PER ANNUM | 1.125% | 1.125% | 1.125% | 1.90% |
The highest Gross Interest Rate in the table above is 1.90% per annum.
In order to meet my target of PHP 904, 709.23 Annual Net Income, how much capital do I need?
PHP 904,709.23 / 1.90% = PHP 47,616,275.26
PHP 904,709.23 / 1.90% = PHP 47,616,275.26
I will need PHP 47,616,275.26 to earn PHP 904,709.23 at 1.90% Gross Interest Rate Per annum.
Option C: Unit Investment Trust Fund (UITF)
BANK | BANCO DE ORO | BANK OF PHILIPPINE ISLANDS | METROBANK | SECURITY BANK |
---|---|---|---|---|
FUND NAME | BDO SUSTAINABLE DIVIDEND FUND | BPI Philippine Equity Index Fund | Metro PSEi Tracker Fund | SB HIGH DIVIDEND PESO EQUITY FUND |
NAVPU | 133.3994 | 104.2200 | 1.0999 | 1.1442 |
ROI YOY % | 23.98 | 9.31 | 12.57 | 11.38 |
ROI YTD % | 17.80 | 13.58 | 15.15 | 11.22 |
(SOURCE: http://www.uitf.com.ph/#gsc.tab=0)
The highest Gross Interest Rate in the table above is 23.98% per annum.
The highest Gross Interest Rate in the table above is 23.98% per annum.
In order to meet my target of PHP 904,709.23 Annual Net Income, how much capital do I need?
PHP 904,709.23 / 23.98% = PHP 3,772,765.76
PHP 904,709.23 / 23.98% = PHP 3,772,765.76
I will need PHP 3,772,765.76 to earn PHP 904,709.23 at 23.98% Gross Interest Rate Per Annum.
Option D: Mutual Fund
FUND NAME | Philequity PSE Index Fund | Philippine Stock Index Fund | Philequity Fund | ATR Kim Eng Equity Opportunity Fund | First Metro Save and Learn Equity Fund |
---|---|---|---|---|---|
YIELD-TO-DATE | 6.19% | 5.50% | 4.82% | 4.31% | 4.17% |
1-YEAR-RETURN | 2.10% | 0.86% | 2.42% | 5.52% | -2.16% |
3-YEAR-RETURN | 4.30% | 3.87% | 3.80% | 0.74% | 0.34% |
5-YEAR-RETURN | 7.78% | 7.74% | 7.23% | 5.45% | 4.16% |
(SOURCE: https://philpad.com/best-mutual-funds-in-the-philippines/)
The highest Gross Interest Rate in the table above is 7.78% per annum.
In order to meet my target of PHP 904,709.23 Annual Net Income, how much capital do i need?
PHP 904,709.23 / 7.78% = PHP 11,628,653.34
PHP 904,709.23 / 7.78% = PHP 11,628,653.34
I will need PHP 11,628,653.34 to earn PHP 904,709.23 at 7.78% Gross Interest Rate Per Annum.
Option E: Stock Trading
Monthly % Gain | 1% | 2% | 3% | 4% | 5% |
---|---|---|---|---|---|
Compounded Yearly % Gain | 12.68% | 26.82% | 42.58% | 60.10% | 79.59% |
The highest Compounded Yearly Gain in the table above is 79.59% per annum.
In order to meet my target of PHP 904,709.23 Annual Net Income, how much capital do i need?
PHP 904,709.23 / 79.59% = PHP 1,136,712.19
PHP 904,709.23 / 79.59% = PHP 1,136,712.19
I will need PHP 1,136,712.19 to earn PHP 904,709.23 at 79.59% Compounded Yearly Gain Per Annum or Minimum of 5% Gain Per Month.
Let's Summarize:
OPTIONS | ROI-YOY % | CAPITAL REQUIREMENT |
---|---|---|
Savings Account | 0.50% | 180,941,846.00 |
Time Deposit | 1.90% | 47,616,275.26 |
Mutual Fund | 7.78% | 11,628,653.34 |
UITF | 23.98% | 3,772,765.76 |
Stock Trading 1% Gain Per Month | 12.68% | 7,134,930.84 |
Stock Trading 2% Gain Per Month | 26.82% | 3,373,263.35 |
Stock Trading 3% Gain Per Month | 42.58% | 2,124,728.11 |
Stock Trading 4% Gain Per Month | 60.10% | 1,505,339.82 |
Stock Trading 5% Gain Per Month | 79.59% | 1,136,712.19 |
I choose Stock Trading to prepare for my retirement.
If you look at the table above it would be very difficult to raise the capital requirement for me to meet my target Annual Net Income when i reach the age of 50 if i would choose Savings, Time Deposit or Mutual Fund.
Why not UITF? Because if i choose UITF i would be limiting my opportunity to earn.
If i consistently gain 1% per month on average my annual return in stock trading will beat the returns provided by Savings Account, Time Deposit and Mutual Fund.
If i consistently gain 2% per month on average my annual return in stock trading will beat the returns of UITF.
And i believe that in 16 years, it is possible for me to learn how to consistently gain 2% per month or 26.82% per year in stock trading.
Just look at the Top Gainers for this month, it has only been a week into May and we have 81 Stocks that posted more than 2% gain already
At the same time i won't be limiting my opportunity because there would be days, weeks, months or years that i can earn more than 2% in a given trade and that adds significantly more on the upside.
How about you? How are you preparing for your retirement?
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