This article was updated on 17 June 2019.
This article was written in collaboration with SGX. All views are the independent opinion of DollarsAndSense.sg
Investing isn’t something most people think about on a daily basis. Some even disregard it, thinking they don’t have enough money or knowledge to start. Others overlook it entirely because they’re too busy with their daily lives.
As the latest iPhone X launch on 3 November 2017, we found out that the lack of disposable income isn’t necessarily the reason why people don’t invest, as media outlets reported hundreds had queued overnight outside the Apple store at Orchard Road just to get their hands on the phone.
Selling at a retail price of between $1,648 (64GB) to $1,888 (256GB), many people in Singapore have shown their willingness to part with such an amount on discretionary expenditure. It is also apparent that people are willing to make time to do the things that are important to them, such as queuing up for a brand new phone.
Starting Your Investment Journey Requires The Same Financial Commitments As Buying An iPhone X
To start investing, all you really need could amount to the same resources you put into buying the iPhone X.
By foregoing your annual iPhone upgrade, which would give you an additional $1,800 a year, or $150 a month, you can begin your investment journey by making regular investments through a Regular Shares Savings (RSS) plan every month into stable companies within the Singapore Exchange.
After opening an account, you can choose to invest your $150 into exchange-traded funds (ETFs), blue-chip shares or other selected shares every month. As this investment will be comparatively safer and also recurring on a monthly basis, the time you need to monitor them may also be minimal.
What Exactly Can I Invest In Using A Regular Shares Savings Plan?
As mentioned, you can start investing into listed ETFs such as the Straits Times Index (STI) ETF, via either the Nikko AM Singapore STI ETF or the SPDR Straits Times Index ETF. You could also take positions in blue-chip shares or other selected shares, such as SingTel, DBS, Singapore Airlines and listed real estate investment trusts (REITs) such as Ascendas REIT or CapitaLand Mall Trust. To find out more about some of these companies, you can visit SGX’s StockFacts portal.
Also, you need to understand that these investments carry risks as well. The idea of embarking on an RSS plan is to ride out the market highs and lows over a long-time horizon spanning several years to achieve close to the benchmark returns.
This should not throw you off as buying an iPhone would have been much riskier to your financial well-being. The moment you buy a brand-new iPhone, you will experience a hefty depreciation. By doing this year and year, you will only be facing losses as you sell an outdated iPhone only to spend more to pick up the latest model.
How Your Investments Will Grow Over The Next 5 to 10 Years
Instead, if you consistently contribute $150 towards, and have the willpower to forego new iPhones, your investments may grow to a sizeable amount within the next five, 10, 20 and even 40 years. In fact, the Singapore Exchange (SGX) revealed that if you had utilised a dollar cost averaging (DCA) method to invest into the STI since June 2013, your investments would have achieved an annual compounded return of 6.4%.
To give you a rather simplified idea of how this works, we’ll extrapolate this figure (6.4% p.a) over the next 40 years, to show you the returns you may achieve. Of course, the actual figure may be higher or lower, depending on the market sentiments over the next few years. However, your long-term goal should be to ride out short-term price volatility.
|Years||$150 In Monthly Contributions||$500 In Monthly Contributions|
|Investment Portfolio (with annual gains)||Contributed Amount||Investment Portfolio (with annual gains)||Contributed Amount|
As you can see in the table, if you’re able to stash away just $150 each month, you would be able to grow your portfolio to $25,122 within 10 years.
If you continue this habit until you retire, and of course, are able to achieve a similar rate of return from the market, you would have accumulated $333,228 after 40 years. Foregoing a small luxury, such as an iPhone purchase or other similar expenditure each year, would allow you to accumulate a considerable sum that will go towards your retirement nest egg. This will allow you to retire more comfortably.
Amount After 40 Years = $333,228 (based on a monthly investment of $150, and a compounded return of 6.4% per annum)
We also added a column to highlight what your investment portfolio may look like if you contributed $500 instead. After 10 years, your portfolio will increase to $85,743. However, you can truly feel the power of compounding returns in the last row where a total contribution of $240,000 could potentially accrue to more than $1 million after 40 years.
Amount After 40 Years = $1,110,761 (based on a monthly investment of $500, and a compounded return of 6.4% per annum)
Investing Gives You Long-Term Gains, Buying An iPhone Only Gives You Short-Term Happiness
We’re not trying advocate living a miserly life – we understand that life is fragile and there’s so much to savour. However, we also advocate being prudent with your money so that you do not regret later on in life. This is because any money you put towards your investments today will enhance your spending power in your later years.
This is why it’s so important to choose the discretionary spending that will deliver the greatest satisfaction for you. If you absolutely have to buy an iPhone to remain happy, you could choose to forego other luxuries in your life by taking public transport over cab rides, eating out less and cooking at home more often or even passing up your annual holiday.
Would a Regular Shares Savings (RSS) plan be a suitable way for you to consider starting your investment journey? Share with us your thoughts on whether you think this would work for you on our Facebook page. We love to hear any questions you may have, and will do our best to share with you our thoughts as well.
If you like to stay up to date with upcoming events that SGX may be organising with regards to investing, you can also follow them on their SGX My Gateway Facebook page.