iWealth Basic Tutorial

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iWealth Tutorial #5

The difference between whole wealth ROI and investment ROI

The return on investment in iWealth refers to the  returns gained from your whole (entire) wealth. It does not refer to the return of any particular investment.

A whole wealth ROI refers to the average return of your total investable assets that may include investments from all asset classes such as properties, shares, direct bonds, unit trust funds, Amanah Saham funds, private retirement scheme (PRS), and others.

For example, assuming that your total investable assets consist of RM40,000 in an unit trust fund and RM10,000 in one share. If the unit trust fund gives you an ROI of 8% and the share gives you an ROI of 10%, the average investment return on your whole wealth would be:
(40,000 / 50,000 x 8%) + (10,000/50,000 x 10%)
= 6.4% + 2%
= 8.4%

Conversely, if your investable assets are all in Fixed Deposit. The interest generated from your Fixed Deposit would be counted as passive income. Therefore, the ROI of your investable assets is 0%.

Most people would have their wealth (assets) spread out into many forms and in different vehicles. There would be some idle cash, a handful of investments with low returns, even some loss-making investments. Loss-making investments would pull down the overall average return of your whole wealth even if you have some investments that gives high returns like 15% or 20%.

As you can see from the example above, high returns does not automatically signify that your wealth is growing. It is important to look at your investments in totality, as there are other factors that would erode the overall performance of your investments. Even if you were to put all your investable assets into high risks, high returns type investments; you may at best enjoy high returns in the range of 15% to 20% for about a year or two. The reality is, it is almost impossible to sustain and consistently achieve high returns for more than 5 years.

If your whole wealth ROI comes up to more than 10%, iWealth considers it as aggressive and not sustainable in the long run.  Ideally, the optimal ROI for your whole investable asset should fall between 8 -10%.

When using iWealth to plot your roadmap to financial freedom, do not worry if you are not sure of the exact ROI for each of your investments. Instead, we highly recommend that you try your best to give an estimated ROI that would most closely reflect your past experience.

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