For those who have given some thought about retirement and who are smart enough to factor in inflation that eats up their wealth during the long period between retirement and death, you would realise that even S$2,000,000 of today's dollars' worth of savings at age 62 might not be enough. That's S$2m in liquid assets, by the way, and you cannot liquidate your home if you have to stay in it.
So how do people save up so much money in their retirement nest egg, especially if they were employees earning a fixed and small salary but with a house ($1.3m after interest payments), cars ($0.5m throughout life), bills ($200/month) & their 2 kids' univeristy fees ($0.5m) to pay for? FYI, ($8,000 salary per month throughout entire life - $200 for bills) * 12 months * 37 years - $0.5m of cars - $0.5m uni - $1.3m home = ONLY $1.16m, half of what could be not enough!!! And I haven't even factored in the vacations, shopping sprees and medical expenses.
So how do some people do it? How do they save so much? Answer is: THEY DON'T SAVE. THEY SPLURGE. They splurge on investments - assets that could yield them cashflow that they don't have to exchange 9a.m. to 5p.m. for - and more importantly, they do that early in their lives. They take and manage calculated risks and get rewarded handsomely in the long run.
Ask me for a long table of statistics and equations, I will show you how making that S$2m (or more) could be twice easier if you start investing at 18 instead of 25, 30 or 40. However, since I can't put that table here, I'll illustrate the power of compounding below:
Common Sense would tell you that if person A had invested some amount of money for x years and person B invested the same amount for 2x years, with the same compounded annual growth rate (CAGR), person B will end up with double the wealth of person A. However, for those who know a little math or the 'FV' equation in MS Excel, you'll know that, fortunately, the truth is far, FAR better than that, since Final Wealth = Initial Investment * (1+CAGR)^x
OK, most people I talk to stop me right here. They say they don't have money. I'll say, get off your back and start saving! Better to start late than to never start. Or they say that they only have S$3k, or S$5k. I say that "the journey to a Million bucks starts with One.", and that MONEY DOESN'T MAKE MONEY, BRAINS makes money. Ever thought of watching the markets and reading economic/market reports an hour a day and coming up with deals with your parents to own a minute fraction of the shares they own? Or to put 20% down to buy a small share (1 square foot * $1000psf * 20% down = $200?) of that new house Dad's getting? Remember, brains create the ideas and the deals, and it's the deals that make money. Money doesn't make money.
Alright, now to my point: I want you to start learning about investments and to start young! Get started ASAP and you will find that, once you know about the world of investments, you will trust your Brains for life to come up with ideas, deals, investments and trades that will give you that second positive cashflow. Below are very fundamental investment topics you can search for at the National Library. If you want more help (and the much more detailed list), get me for my simple reading list and online resources.
(Start with 1a and 'discover' down the list. For those who just want to know the absolute basics, skip 1b and move on to 3d, 3e, 4a, 4b, 5a, 5b, 6, 12.)
1. Asset Allocation
1a. Asset Allocation, Diversification
1b. Retirement Planning
2. Risk Management
3. Equities (Stocks)
3a. Fundamental Analysis
3b. Annual Reports
3c. Initial Public Offerings (IPOs)
3d. Index Investing
3e. Sector Investing
4. Fixed Income
4a. Corporate Debt
4b. Sovereign Debt
5. Funds
5a. Mutual funds (Unit Trusts)
5b. Exchange Traded Funds (ETFs)
5c. Real Estate Investment Trusts (REITs)
6. Structured Products
7. Technical Analysis
8. Financial Derivatives
8a. Hedging risk with Options and Futures
9. Foreign Exchange
9a. Macroeconomics
9b. Hedging FX Risk with Spot Contracts
10. Commodities
10a. Precious Metals
10b. Energy
10c. Agriculture
11. Real Estate
11a. Real Estate Investment Trusts (REITs)
11b. Real Estate Investing
12. The Bloomberg Terminal (VERY, VERY IMPORTANT)
Get started now!!
