This first article serves as the foundation with which our future posts will be built upon. You might have already heard of a robber by the name of INFLATION. He is relentless in his quest of taking away the purchasing power of our money over time. So how do we alleviate the erosion against our bank account? We invest it in assets that appreciate over time, preferably faster than the rate of inflation.
Apart from beating inflation, there is a myriad of reasons why you should be investing. Below are just 3 reasons you should start your investment journey today!
Coined as the “eighth wonder of the world” by Albert Einstein, compounding is indeed a magical phenomenon. Remember the story of the “Rice and the chessboard”?. The emperor wanted to give the man a reward. When asked what he wanted, the man asked the emperor for 1 grain of rice on the first square, 2 on the second, and then continuously double that on every subsequent square (4 on the third, 8 on the fourth.) for all 64 squares on the chessboard. The emperor was amazed at what a small reward the man had asked for – or so he thought. A week later, the emperor’s treasurer told the emperor that the reward would amount to a far greater amount of rice grains than they could conceivably produce. If you do the math, is should add up to about 18,446,744,073,709,551,615 rice grains!
Compounding accelerates exponentially with time.Time is an important variable in investing. Billionaire investor Warren Buffett has achieved astronomical returns not only by picking good companies, but also letting time do its work!
Courtesy of t-sim.com
It’s pretty clear why you should be setting aside cash for investing at a young age. With as little as $120 invested at 12% p.a. from age 25 to 65, it will be worth over $1.1 million by the end of it. Start early, even if you’re not 25 years old, start anyway!
Tax-free Income (only in Singapore!)
As a Singaporean, I love the convenient transportation system, the hawker food and most of all, the tax system! Singapore is a tax haven, where capital gains (profits from the sale of assets) and dividends (profits derived from the business activity) are tax-free for the investor. When we buy stocks of a company, the company gets taxed on its profits. Thereafter, post-tax profits that are distributed to investors will not be taxed further. This is the merit of a one-tier tax system.
Supplementary retirement plan
It is getting harder and harder to retire comfortably these days, let alone retiring luxuriously by monetary definitions. With rising costs of living and longer life expectancy, the retirement age has been increasing progressively to meet the needs of our golden years. While this might sound like a complete tragedy, planning way in advance could help alleviate financial pressures in the ensuing years. Investing is your best bet for a better retirement, especially when you start early and allow compounding to work hard for you. Assets like property, stocks, low-cost index ETFs (we will explain more in future articles) are all good considerations for an investment portfolio.
So here are just 3 reasons why you should start investing. I do not encourage you to delve straight into the market (that’s obviously not how Brandon and I did). Take the time to acquire more knowledge about investing. More importantly, choose a methodology that resonates with you and suits your risk profile (yes, there are risks just like anything else duh!).
Till next week, have a good weekend!