The IMPORTANCE of INVESTING. EARLY.
For some of the young adults out there, you might be wondering why should I be concerned about retirement – when I haven’t even started work? I can understand that. Years ago, when I was a student like you all, I shared the same feeling, but it was until when I came to know about how some retirees are struggling financially that I came to know about the importance of planning for your retirement early.
A recent study by The Wharton School, revealed a startling fact about retirement in Singapore: Despite having one of the highest savings in the world, Singaporeans will live on only 30% of their last drawn salary instead of 75% as recommended by retirement planners, meaning to say, we may have to work longer or even downgrade our quality of life.
I shall now discuss why Social Security, known as the Central Provident Fund in Singapore is unlikely to work in the future and how you can do asset accumulation for your retirement. In an economic review in 2004, more than 50 percent of Singaporeans believed that the money they have in their CPF would provide them with enough money for retirement. However, they were mistaken–badly mistaken.
The CPF, like many other social-security schemes would provide nothing more than a minimal level of living. With inflation, CPF savings hardly grew in the 80s and 90s–according to a report by Mukul Asher, an economist at the NUS. The CPF’s basic structure, which pays members low, short-term interest rates for most of their long-term savings, will make it very hard to boost returns. Even government leaders like Mah Bow Tan have warned that we will need to look beyond the fund to finance our retirement.
The low returns will mean that many of us will hit retirement with an apartment but little cash to draw on, that is asset rich, but cash poor. 24 percent of the CPF members last year who reached age 55 had less than S$16,000 in their CPF accounts–an amount that will run out quickly without family support. This situation would be worsened, by our aging population and falling birthrates. By 2030, only 3.5 persons will be supporting one elderly as compared to 10 persons today. It is therefore, not wise of us, to simply rely on CPF to support us in our golden years. There are, however, other things you can do to prepare yourself for retirement.
But before I move on, just a simple question for you guys to ponder about regarding the time value of money. Is a dollar always worth a dollar? Well, a dollar is not always a dollar. With inflation consistently destroying the purchasing power of a dollar, a dollar today could be worth only 98 cents in a year. However, if you invest the dollar today, with 10% annual return, you’d have $1.10. And if you leave this dollar invested, its value will mushroom over time with compounding effect. As you earn investment returns, your returns begin to gain returns as well. Real wealth, is in fact created through the most basic principles, i.e. patience, time, and the compounding power, which is so miraculous that even at relatively low returns you can double and triple your money over long periods of time.
However, what keeps most people from becoming rich is the habit of wanting instant gratification. That is, wanting to enjoy now and not having the patience to wait for future benefits. By spending on that new car, designer watch, or your DVD recorders, they get instant gratification. When it comes to investing on books, seminars or insurance, they will think twice as they have to wait for future benefits. When they don’t see huge sums of money in a few weeks, they abandon their investments and never get to reap the benefits.
Perhaps, these people ought to learn a lesson from the Chinese bamboo tree. After planting the seed of this amazing tree, you see nothing, absolutely nothing, for four years except for a tiny shoot coming out of its bulb. During those four years, all the growth takes place underground. But then in the fifth year the Chinese bamboo tree suddenly starts to grow above the ground level up to eighty feet tall.
Investments and many other things in our life are akin to the Chinese bamboo tree. You strive hard, you invest time, money and effort, doing everything you can, but most of the time, do you see the results? Yes or no? YES, you’ll always see results. It’s either results you want, or results you don’t want. However, sometimes you don’t see anything for weeks, months, or even years. But if you’re patient and keep on moving, that “fifth year” will eventually come, and you would be astonished at the growth and change that takes place.
Next, we have people who have illusory control. They feel they have more control if they park their money in low risk assets like fixed deposits. But the fact is that savers are the biggest losers of all. Between 1996 and 2006, the purchasing power of the dollar dropped by 50 percent compared to gold. Just because they don’t have control over the price of gold, oil, or real estate, they think investing in these assets is risky. Putting your money in safe instruments like fixed deposits doesn’t necessarily mean there is no risk. With inflation, a person holding cash suffers a negative return.
Risk is a fundamental part of life. It exists because we are uncertain of the outcome. There is always a certain degree of risks in many of the decisions we make concerning our lifestyle. While we cannot run away it, it would be foolish to ignore its existence. Think about it, is it risky for a national swimmer to swim in the swimming pool? Then consider, is it dangerous for you to leave a three year old child in the pool? The answer is obvious. My point here is that whether or not something is risky, depends more on how much you know and not what it is. We can’t say for sure that swimming pools are the safest place on earth, but neither can we say that it would be life-threatening to put a national swimmer in a swimming pool. As Warren buffet says it well, risk comes from not knowing what you are doing.
Instead of avoiding risk, we can learn how to manage risk, by having a strict set of money management rules. For example, do not over-commit for any single investment and have enough financial resources to see investment through a reasonable period of time.
A very good way of minimizing risk, especially for young adults like you all, would be to invest in professionally managed funds. In Elpis, We have a wide range of funds for investors with different risk appetites. You will benefit from the collective experience of the fund managers and their expertise and proven track record in managing funds. In line with my company’s slogan, “Transforming hopes into reality,” we have put words into action and help clients to achieve their financial goals.
To start saving for your retirement, it doesn’t mean that you have got to save a thousand or two every month, but rather, it could be even as low as a hundred a month, which would go a long way to make life easier for yourself in the future, financially.
Because of the potential returns you’ll make, you’ll want to invest now. All of you deserve to enjoy life to the fullest even in your retirement years, rather than settle for annuities of a few hundreds by the government. It just doesn’t make sense for you to be working so hard for half your lifetime but not being able to enjoy life as much as you could. Old age is not the time you should be worrying about money! Your financial security in your golden years depends on what you do right now. If you don’t take control of it now, “someone” else would.
I believed all of you here, want to continue to enjoy the finest things in life even in your golden years, and you want to feel as though you will have enough money to live comfortably. Make your money work for you now. For those of you who are going to work solely for money, it only makes sense to earn as much as you can now. Sometimes, we tend to forget what are the real things that matters in life. We’re so busy doing our jobs or school projects, that we forget the real end goal, i.e. to make some real money, which many of us can do right NOW. Getting STARTED is probably the hardest part of a retirement plan. However, the earlier you put off taking action, the EASIER the task becomes and you can take ADVANTAGE of the compounding power to CREATE WEALTH.
Article written by Ng Zhi Wei
1 June 2006
To find out more about how you could achieve your investment, protection and retirement needs, text to Mr. Ng at 9790 8735 or MSN/email at zz63ei@hotmail.com
Leave a Reply