3 reasons young Singaporeans need to start investing now

Your parents always wished you were a child prodigy, but all those violin/abacus/ballet classes were wasted on you, and here you are, an adult who's as ordinary as any other. Sometimes you wish your parents had been less kiasu and just let you live a little.

When it comes to investing, however, the earlier you start the better, no ifs and buts.

You may not have a special talent for it, but you have to do it anyway. You may not be the next Warren Buffet, but no matter how little you have, you need to start pronto. Here's why.

The earlier you start investing, the less you'll actually have to save

If you're a 20-something who thinks it's hard to save money to invest with now, it's going to be ten times harder when you're older, not only because you'll have more financial commitments, but also because you'll need to save a hell of a lot more money by then.

That's because given time, money grows a lot more than you think thanks to compounding interest.

Let's say you're earning 5 per cent interest on $10,000-you'll have $10, 500 after a year. But after the second year, you won't have $11,000. You'll have $11,025, because you got 5 per cent on $10,500 and not your initial sum of $10,000.

Doesn't sound like much, does it?

10 lessons to learn from rich and successful people

  • Thomas Corley said that rich people were often self-educators. This means that most of them read to learn. They read material that will help their dreams and goals on a day-to-day basis. Many of these people also wrote down what they learned and implemented their new knowledge in their daily lives.
  • According to Corley, wealthy people tend to follow a 80:20 rule when it comes to money. That means that they saved a lot of the money that they earned instead of wasting it away. Corley says there are 3 ways to accumulate wealth: Save 20% of what you earn, expand your means of income, or both. The third way is the fastest way a person can become rich, Corley adds.
  • About 80% of wealthy people were obsessed with their dreams, Corley said. He noted in his observations that 55% spent a year or more pursuing just one goal.
  • Wealthy people associate with other successful people because they now this is the key to expanding their networks, Corley says. This is the reason why wealthy people volunteer in organisations and groups where other successful people are also involved in. Successful people also make a point to minimise contact with those they see as unsuccessful. Corley says that those who are not rich but are yearning for success should expand their networks and forge new relationships for opportunities.
  • Corley identified 3 traits in every wealthy person who was pursuing a long-term goal. These traits were focus, persistence and patience. Corley also found that these traits caused wealthy people to sacrifice everything for their goals - they never give up.
  • According to Corley, 85% of the wealthy loved what they did for a living. If they were unhappy, they'd find something they were passionate about and changed careers or pursued them as hobbies for a start.
  • As they are already yearning to learn more every day, successful people are open minded and welcome new ideas, possibilities and ways of thinking. Their thoughts evolve over time, Corley says, allowing them to stand out from non-wealthy people.
  • Wealthy people tend to be good listeners too, Corley observed. They listen more than they talk and because of that, they learn more about the people around them.
  • Corley found in his study that 67% of the wealthy watch less than one our of TV every day. They spend their free time reading, networking and volunteering instead.
  • Most wealthy people believe in creative thinking. Creativity allows rich people to create services and products that add value to society, hence reaping monetary reports for themselves.

But let's fast-forward 20 years-and your initial sum of $10,000 has grown to $26,532.98.

Use this compound interest calculator and see for yourself.

Conversely, let's say you do not invest for the next 15 years and then want to accumulate the same amount within five years. If you only have five years to invest the money, you'll need to save up $20,789 instead of $10,000!

I don't know about you, but I'd rather save up now and let my money grow than freak out when I'm much older because I need to suddenly cough up half a million in cash before I retire.

You can take more risks  

There is no such thing as a risk-free investment. Any investment that gives you returns that can beat inflation comes with some degree of risk.

The only (almost) risk-free investment scheme we have out there is CPF, and that's why the interest rate for your ordinary account funds is only 2.5 per cent.

In real life, most younger people should be aiming for returns far higher than 2.5 per cent. But to receive higher returns we take on greater risk.

If you invest in stocks, you should know all too well that the market fluctuates wildly in the short term.

10 ways to save $20,000 a year in your 20's

  • One advice I gave my closer friends was to borrow the money from their parents instead, and pay off the bank loan asap. At least that way, you save on interest rates.
  • If you can't teach, what about doing something else that you're good at? There's a huge supply of part-time jobs out there, but few people are willing to spend their extra time on that.
  • As a general rule of thumb, aim to have at least 3 times of your monthly expenses in your emergency fund, kept aside for rainy days.
  • If, like my colleagues, you smoke every day and go drinking on Fridays and Saturdays, that can easily cost you over $300 in a month!
  • 10 ways to save $20,000 a year in your 20's-4
  • There's nothing to be ashamed of in telling people that you're on a budget, saving up to repay your study loan, saving up for a new car, or a wedding.
  • You eat 3 times every day. And where does all that food go? Down the toilet bowl. Whether or not you spend $20 on a cafe lunch or $3 on a plate of Hokkien Mee, everyone knows the outcome of your food is still the same.
  • If you're thinking of buying insurance, I suggest you speak to an honest agent first who won't give you all the fluff about each policy.
  • Ditch that gym membership. Do you really need that manicure/facial/spa package? And why are you still paying for premium cable TV when you're barely home to watch it?
  • I can never justify paying $10 for a popcorn or $8 for nachos when I know I can get them cheaper before or after the movie.
  • Seriously, why on earth do you need an iPad, iPod or a Kindle when you already own a laptop and mobile phone? And unless you're a professional photographer, you will never get back the money you spent on buying your DSLR.

The advantage of having a long time to go before retirement is that you can afford to ride out the fluctuations and benefit from increases in value over longer periods of time.

If you start saving and investing later on in life, you'd better not try anything too risky, because you may not get to wait 10 or 20 years for the market to bounce back, since you could be dead or at least destitute by then. Low risk usually means lousy returns, which brings us back to our previous point-we hope you suddenly learn to love saving, because you're going to have to do a lot of it.

It's easier to save when you're commitment free

Young people who complain that it's hard to save money now because of their addiction to shoe shopping or craft beer should wait 20 years and see if it gets any easier.

For the vast majority of Singaporeans, responsibilities start piling up as they get older. Once you take out a mortgage for your first home, you're signing up for almost a lifetime of loan repayments. Then there are car loans and renovation loans for your home.

If you intend to have kids, it's even more important that you start saving now, because children as we've seen can be quite a money sink, especially if you join the brigade of kiasu parents whose kids are enrolled in a litany of tuition, enrichment, ballet, violin, abacus, baby genius, fencing, etc classes.

Many young parents I know carry credit card balances they just can't seem to pay off, which is even scarier because this is not debt you can get rid of by just sitting home and eating instant noodles for two months-no matter how much you try to scale back your own lifestyle, your dependents' expenses aren't always within your control.

The later you start saving for your own retirement, the higher the likelihood that your poor kids will be the ones who'll have to support you when you're older.

20 tips from Warren Buffett

  • “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
  • “To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses – How to Value a Business, and How to Think About Market Prices.”
  • “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
  • "No advisor, economist, or TV commentator -- and definitely not Charlie nor I -- can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet."
  • “What’s required is thinking rather than polling. Unfortunately, Bertrand Russell’s observation about life in general applies with unusual force in the financial world: “Most men would rather die than think. Many do.”
  • “After all, you only find out who is swimming naked when the tide goes out.“
  • “The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”
  • Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
  • “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock."
  • You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. "
  • “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
  • “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.“
  • “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”
  • “The stock market is a no-called-strike game. You don’t have to swing at everything–you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’”
  • “Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me. I don’t think it is going to be hurt by the Internet. That’s the kind of business I like.”
  • “Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.“
  • “Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong (a challenge we periodically manage to overcome)."
  • “Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1″
  • “I am a better investor because I am a businessman, and a better businessman because I am no investor.”
  • “Time is the friend of the wonderful business, the enemy of the mediocre.”

This article first appeared on MoneySmart

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