W3_WAS_Choosing Investment Instrument for Hajj Payment


Step 1- Problem or Opportunity Statement
In my previous blog posting https://simatupangaace2014.wordpress.com/2013/09/07/310/  , I discussed future value and annuity of hajj payment. The assumption of interest (inflation) is 10%. Next step, I have to find out what kind of investment instrument I should choose to get interest more than 10%.

Step 2 – “FEASIBLE alternatives”
Nowadays many investment instruments offered by bank or asset management company, such as:
1. Stocks
2. Property
3. Gold
4. Mutual Funds

In my case, I prefer comparing Mutual funds – (equity) and Gold, because stocks & property investment require huge amount of money & experience. I will use data of Schroder’s product: Dana Prestasi, which is an investment product released since 1997.

Step 3- Develop the outcomes for each alternative (minimum 2)

Historical data for Mutual Funds – equity and Gold :

*Gold; One troy ounce is currently defined as exactly 0.0311034768 kg or 31.1034768 g




Step 4- Selection of the acceptable criteria.

Find out which investment instrument gives interest (i) more than 10%

Investment Instrument: Mutual Fund

Investment Instrument: Gold

Step 5- Analysis/ Comparison of the Alternatives against the Criteria

From calculation above, interest value from Mutual fund is bigger than gold: 26% vs 11%. But both of them have interest more than inflation rate per year.

Graphic shows gold price goes up steadily, but Mutual fund price can went up and down drastically. But for long term, investor can gain lots of profit (price increase).

Step 6- Selection of the Best/ Preferred Alternative Compared against the Criteria

Investing in Mutual Fund can lead me to a higher amount of money in the end of my investment, as long as I do it for long term investment. But to be safe, I can also invest in gold since the interest can beat inflation rate, too.

Step 7- Performance Monitoring and Post Evaluation of Result/ Follow up Assessment

I will invest in both of them because proverb said, “Don’t put your egg in one basket”. Mutual fund have a quite big risk but high return, and gold price is slightly higher than inflation rate. As the interest rate is higher than inflation rate, I may came up with higher value than I needed in the future, but it’s okay since there’s also some risk in investment. And of course, I should be discipline to invest my money every year.

REFERENCES

Sullivan, W. G., Wicks, E. M., & Koelling, C. P. (2012). The Time Value of Money. In Engineering Economy (15th ed., pp. 104-162). Upper Saddle River, N.J: Prentice Hall.

Westney, Ricahrd E, (1997). The Engineer Cost Handbook. 1st ed. New York: Marcel Dekker, Inc. .

World Gold Council (2013). Gold price in a range of currencies since December 1978 XLS version. [ONLINE] Available at: http://www.gold.org/download/value/stats/statistics/xls/gold_prices.xls. [Last Accessed 13 September 2013].

Schroders (2013). Schroder Dana Prestasi – Prices. [ONLINE] Available at: http://www.schroders.com/indonesia/fund-centre/prices-and-performance?p=details&code=IDN000000700&sc=2352. [Last Accessed 13 September 2013].

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3 Comments

Filed under Week 03, Wirawan ASP

3 responses to “W3_WAS_Choosing Investment Instrument for Hajj Payment

  1. Hi Pak Wirawan,
    I really like your case study and your sources of data were good ones…….. BUT…….. You need to read over Chapters 5 and 8 in your Engineering Economy FIRST, then revise this posting.

    The first major error was you should not be comparing different currencies. To make a meaningful comparison you need to convert gold into rupiah or rupiah into dollars- comparing apples to apples as the saying goes…… Ideally, you should use whatever currency that you will be paying for your Haj in.

    You also need to take those curves and project them into the future….. they need to be projected to the date you plan on going on your Haj. Then you take those numbers and bring them back to today using NPV. You should also look at performing an IRR analysis (pages 194-205) and the External Rate of Return analysis (pages 205-209)

    Now, you may well end up with the same decision but the process you use will be more correct or appropriate…..

    Please make those corrections and then REPOST as W3.1…….. (AND you should be able to claim credit for the problems in Chapter 5 and Chapter 8 from Engineering Economy……)

    BR,
    Dr. PDG, Jakarta

  2. To clarify, the purchasing power parity of USD @11% and the purchasing power of rupiah @ 26% is a somewhat meaningless comparison, especially if you want to project it into the future. (Look at the volatility of the USD to Rupiah just in the last couple of months- imagine what it might look like in 5 years?)

    To make any meaningful comparison, all the currencies must be using a common denominator….. Which is the whole basis for the papers Hari and Pak Trian did converting all paper currency into gold equivalence….

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