Erratum on May 13, 2008 article

Mr. J.M. (I am not sure he wants to have his name published) was kind enough to write me on info@colaycofoundation with his findings. And his email said: “I am very fond of Mr. Colayco's Blog at GMANews.TV, and I was reading this particular topic "Financial Literacy is not about Numbers" posted last May 13, 2008. And I would like to bring your attention to Paragraph 17 of the said article that reads: "But let us just say for the sake of argument that you are not able to get 20% per annum and that you are not disciplined enough to save monthly for 40 years. If you still saved your P10 per day (something you normally throw away for unnecessary expenses) for 17 months until it your savings reaches P5,000, invested at say 15% p.a. and added P1,000 every 3 months (the time it takes you to save the amount at P10 per day) you will still end up with around P7.6 Million at the end of 20 years. You might not find this amount exciting but it certainly beats nothing. Note too that the amount you actually put aside in 40 years is only P159,100." I did my own computation to better understand what Mr. Colayco meant about "Time and Compounding. Let's put it to good use", and I did not get the 7.6 million at the end of 20 years. Wondering where I went wrong, I investigated further, re-reading the article for the n time and came to the conclusion that it should not have read "at the end of 20 years", but rather "at the end of 40 years". On the other hand, when I computed for 40 years, I did not get 7.6 million at the end of 40 years, instead 12.04 million. Even if I deducted the mandatory 20% Withholding tax from the 12.04 million, it's still not 7.6 million. Below are my computations for your perusal. I would appreciate if you can take a look at it and send me your thoughts and feedback. I would like to know where I did wrong in my computation. Furthermore, the actual amount place aside in 40 years should have been 164,000 as the 159,100 did not consider the initial 5,000 investment. 10 per day 17 months 5000 initial savings 15% annual interest rate Add'l Invest Begin Bal Interest Ending Bal Add'l Invest Begin Bal Interest Ending Bal 1 5,000.00 62.50 5,062.50 1 113,935.37 1,424.19 115,359.56 2 5,062.50 63.28 5,125.78 2 115,359.56 1,441.99 116,801.55 3 1000 6,125.78 76.57 6,202.35 3 1000 117,801.55 1,472.52 119,274.07 4 6,202.35 77.53 6,279.88 4 119,274.07 1,490.93 120,765.00 5 6,279.88 78.50 6,358.38 5 120,765.00 1,509.56 122,274.56 6 1000 7,358.38 91.98 7,450.36 6 1000 123,274.56 1,540.93 124,815.49 7 7,450.36 93.13 7,543.49 7 124,815.49 1,560.19 126,375.69 8 7,543.49 94.29 7,637.78 8 126,375.69 1,579.70 127,955.38 9 1000 8,637.78 107.97 8,745.76 9 1000 128,955.38 1,611.94 130,567.33 10 8,745.76 109.32 8,855.08 10 130,567.33 1,632.09 132,199.42 11 8,855.08 110.69 8,965.77 11 132,199.42 1,652.49 133,851.91 12 1000 9,965.77 124.57 10,090.34 12 1000 134,851.91 1,685.65 136,537.56 1 10,090.34 126.13 10,216.47 1 136,537.56 1,706.72 138,244.28 2 10,216.47 127.71 10,344.17 2 138,244.28 1,728.05 139,972.33 3 1000 11,344.17 141.80 11,485.98 3 1000 140,972.33 1,762.15 142,734.49 4 11,485.98 143.57 11,629.55 4 142,734.49 1,784.18 144,518.67 5 11,629.55 145.37 11,774.92 5 144,518.67 1,806.48 146,325.15 6 1000 12,774.92 159.69 12,934.61 6 1000 147,325.15 1,841.56 149,166.71 7 12,934.61 161.68 13,096.29 7 149,166.71 1,864.58 151,031.30 8 13,096.29 163.70 13,259.99 8 151,031.30 1,887.89 152,919.19 9 1000 14,259.99 178.25 14,438.24 9 1000 153,919.19 1,923.99 155,843.18 10 14,438.24 180.48 14,618.72 10 155,843.18 1,948.04 157,791.22 11 14,618.72 182.73 14,801.46 11 157,791.22 1,972.39 159,763.61 12 1000 15,801.46 197.52 15,998.97 12 1000 160,763.61 2,009.55 162,773.15 1 15,998.97 199.99 16,198.96 1 162,773.15 2,034.66 164,807.82 2 16,198.96 202.49 16,401.45 2 164,807.82 2,060.10 166,867.92 3 1000 17,401.45 217.52 17,618.97 3 1000 167,867.92 2,098.35 169,966.27 4 17,618.97 220.24 17,839.20 4 169,966.27 2,124.58 172,090.84 5 17,839.20 222.99 18,062.19 5 172,090.84 2,151.14 174,241.98 6 1000 19,062.19 238.28 19,300.47 6 1000 175,241.98 2,190.52 177,432.50 7 19,300.47 241.26 19,541.73 7 177,432.50 2,217.91 179,650.41 8 19,541.73 244.27 19,786.00 8 179,650.41 2,245.63 181,896.04 9 1000 20,786.00 259.82 21,045.82 9 1000 182,896.04 2,286.20 185,182.24 10 21,045.82 263.07 21,308.90 10 185,182.24 2,314.78 187,497.02 11 21,308.90 266.36 21,575.26 11 187,497.02 2,343.71 189,840.73 12 1000 22,575.26 282.19 22,857.45 12 1000 190,840.73 2,385.51 193,226.24 1 22,857.45 285.72 23,143.17 1 193,226.24 2,415.33 195,641.57 2 23,143.17 289.29 23,432.46 2 195,641.57 2,445.52 198,087.09 3 1000 24,432.46 305.41 24,737.86 3 1000 199,087.09 2,488.59 201,575.68 4 24,737.86 309.22 25,047.08 4 201,575.68 2,519.70 204,095.37 5 25,047.08 313.09 25,360.17 5 204,095.37 2,551.19 206,646.57 6 1000 26,360.17 329.50 26,689.67 6 1000 207,646.57 2,595.58 210,242.15 7 26,689.67 333.62 27,023.30 7 210,242.15 2,628.03 212,870.17 8 27,023.30 337.79 27,361.09 8 212,870.17 2,660.88 215,531.05 9 1000 28,361.09 354.51 28,715.60 9 1000 216,531.05 2,706.64 219,237.69 10 28,715.60 358.95 29,074.55 10 219,237.69 2,740.47 221,978.16 11 29,074.55 363.43 29,437.98 11 221,978.16 2,774.73 224,752.89 12 1000 30,437.98 380.47 30,818.45 12 1000 225,752.89 2,821.91 228,574.80 1 30,818.45 385.23 31,203.68 1 228,574.80 2,857.18 231,431.98 2 31,203.68 390.05 31,593.73 2 231,431.98 2,892.90 234,324.88 3 1000 32,593.73 407.42 33,001.15 3 1000 235,324.88 2,941.56 238,266.44 4 33,001.15 412.51 33,413.66 4 238,266.44 2,978.33 241,244.78 5 33,413.66 417.67 33,831.34 5 241,244.78 3,015.56 244,260.33 6 1000 34,831.34 435.39 35,266.73 6 1000 245,260.33 3,065.75 248,326.09 7 35,266.73 440.83 35,707.56 7 248,326.09 3,104.08 251,430.16 8 35,707.56 446.34 36,153.91 8 251,430.16 3,142.88 254,573.04 9 1000 37,153.91 464.42 37,618.33 9 1000 255,573.04 3,194.66 258,767.71 10 37,618.33 470.23 38,088.56 10 258,767.71 3,234.60 262,002.30 11 38,088.56 476.11 38,564.67 11 262,002.30 3,275.03 265,277.33 12 1000 39,564.67 494.56 40,059.22 12 1000 266,277.33 3,328.47 269,605.80 1 40,059.22 500.74 40,559.96 1 269,605.80 3,370.07 272,975.87 2 40,559.96 507.00 41,066.96 2 272,975.87 3,412.20 276,388.07 3 1000 42,066.96 525.84 42,592.80 3 1000 277,388.07 3,467.35 280,855.42 4 42,592.80 532.41 43,125.21 4 280,855.42 3,510.69 284,366.11 5 43,125.21 539.07 43,664.28 5 284,366.11 3,554.58 287,920.69 6 1000 44,664.28 558.30 45,222.58 6 1000 288,920.69 3,611.51 292,532.20 7 45,222.58 565.28 45,787.86 7 292,532.20 3,656.65 296,188.85 8 45,787.86 572.35 46,360.21 8 296,188.85 3,702.36 299,891.21 9 1000 47,360.21 592.00 47,952.21 9 1000 300,891.21 3,761.14 304,652.35 10 47,952.21 599.40 48,551.62 10 304,652.35 3,808.15 308,460.50 11 48,551.62 606.90 49,158.51 11 308,460.50 3,855.76 312,316.26 12 1000 50,158.51 626.98 50,785.49 12 1000 313,316.26 3,916.45 317,232.71 1 50,785.49 634.82 51,420.31 1 317,232.71 3,965.41 321,198.12 2 51,420.31 642.75 52,063.06 2 321,198.12 4,014.98 325,213.10 3 1000 53,063.06 663.29 53,726.35 3 1000 326,213.10 4,077.66 330,290.76 4 53,726.35 671.58 54,397.93 4 330,290.76 4,128.63 334,419.40 5 54,397.93 679.97 55,077.91 5 334,419.40 4,180.24 338,599.64 6 1000 56,077.91 700.97 56,778.88 6 1000 339,599.64 4,245.00 343,844.63 7 56,778.88 709.74 57,488.62 7 343,844.63 4,298.06 348,142.69 8 57,488.62 718.61 58,207.22 8 348,142.69 4,351.78 352,494.48 9 1000 59,207.22 740.09 59,947.31 9 1000 353,494.48 4,418.68 357,913.16 10 59,947.31 749.34 60,696.66 10 357,913.16 4,473.91 362,387.07 11 60,696.66 758.71 61,455.36 11 362,387.07 4,529.84 366,916.91 12 1000 62,455.36 780.69 63,236.06 12 1000 367,916.91 4,598.96 372,515.87 1 63,236.06 790.45 64,026.51 1 372,515.87 4,656.45 377,172.32 2 64,026.51 800.33 64,826.84 2 377,172.32 4,714.65 381,886.97 3 1000 65,826.84 822.84 66,649.67 3 1000 382,886.97 4,786.09 387,673.06 4 66,649.67 833.12 67,482.79 4 387,673.06 4,845.91 392,518.97 5 67,482.79 843.53 68,326.33 5 392,518.97 4,906.49 397,425.46 6 1000 69,326.33 866.58 70,192.91 6 1000 398,425.46 4,980.32 403,405.78 7 70,192.91 877.41 71,070.32 7 403,405.78 5,042.57 408,448.35 8 71,070.32 888.38 71,958.70 8 408,448.35 5,105.60 413,553.96 9 1000 72,958.70 911.98 73,870.68 9 1000 414,553.96 5,181.92 419,735.88 10 73,870.68 923.38 74,794.07 10 419,735.88 5,246.70 424,982.58 11 74,794.07 934.93 75,728.99 11 424,982.58 5,312.28 430,294.86 12 1000 76,728.99 959.11 77,688.10 12 1000 431,294.86 5,391.19 436,686.05 1 77,688.10 971.10 78,659.21 1 436,686.05 5,458.58 442,144.62 2 78,659.21 983.24 79,642.45 2 442,144.62 5,526.81 447,671.43 3 1000 80,642.45 1,008.03 81,650.48 3 1000 448,671.43 5,608.39 454,279.82 4 81,650.48 1,020.63 82,671.11 4 454,279.82 5,678.50 459,958.32 5 82,671.11 1,033.39 83,704.50 5 459,958.32 5,749.48 465,707.80 6 1000 84,704.50 1,058.81 85,763.30 6 1000 466,707.80 5,833.85 472,541.65 7 85,763.30 1,072.04 86,835.34 7 472,541.65 5,906.77 478,448.42 8 86,835.34 1,085.44 87,920.78 8 478,448.42 5,980.61 484,429.02 9 1000 88,920.78 1,111.51 90,032.29 9 1000 485,429.02 6,067.86 491,496.89 10 90,032.29 1,125.40 91,157.70 10 491,496.89 6,143.71 497,640.60 11 91,157.70 1,139.47 92,297.17 11 497,640.60 6,220.51 503,861.11 12 1000 93,297.17 1,166.21 94,463.38 12 1000 504,861.11 6,310.76 511,171.87 1 94,463.38 1,180.79 95,644.18 1 511,171.87 6,389.65 517,561.52 2 95,644.18 1,195.55 96,839.73 2 517,561.52 6,469.52 524,031.04 3 1000 97,839.73 1,223.00 99,062.73 3 1000 525,031.04 6,562.89 531,593.92 4 99,062.73 1,238.28 100,301.01 4 531,593.92 6,644.92 538,238.85 5 100,301.01 1,253.76 101,554.77 5 538,238.85 6,727.99 544,966.83 6 1000 102,554.77 1,281.93 103,836.71 6 1000 545,966.83 6,824.59 552,791.42 7 103,836.71 1,297.96 105,134.67 7 552,791.42 6,909.89 559,701.31 8 105,134.67 1,314.18 106,448.85 8 559,701.31 6,996.27 566,697.58 9 1000 107,448.85 1,343.11 108,791.96 9 1000 567,697.58 7,096.22 574,793.80 10 108,791.96 1,359.90 110,151.86 10 574,793.80 7,184.92 581,978.72 11 110,151.86 1,376.90 111,528.76 11 581,978.72 7,274.73 589,253.46 12 1000 112,528.76 1,406.61 113,935.37 12 1000 590,253.46 7,378.17 597,631.62 Dear Mr. J.M. Thank you very much for bringing up the error and I really appreciate your feedback. 1. The error was in that, instead of the P5,000 initial investment, I used P1,700. For some reason, I multiplied 17 months with 100 (must be one of those senior moments). No explanation except pure sloppy computing. I also computed based on 40 years not 20. That "20 years" is pure typo. I must have done it late at night when I was sort of sleepy. My deepest apologies. 2. You were also right about the P159,100 number. Again, I missed out on the first P5,000 investment. 3. Re investment that yield 15%to 20%: Phil Equity Mutual Fund up to 2007 averaged 22% annual compounded rate. This was good for a 15-year period (1993 thru 2007). If you include 2008, average annual compounded rate dropped to 13.5% due to extraordinary losses of about 37% in 2008. 4. 15% to 20% is an achievable target for mutual funds provided you invest for at least 10 years and employ cost-averaging technique in investing. Note that there is no guarantee. However, with proper investment, goal setting and planning, one would know when to buy and/or sell his investments so that he could average out anywhere from 12 to 20%. In summary, again I apologize for my mistake and really thank you for keeping us on our toes. Its readers like you who keep us going and further sharpen our skills in the long term. In another email, we sent you a list of investment options that you might want to investigate. Prosperous regards, FJC