The COVID-19 pandemic has been tough on everyone. Whether you are a frontliner, essential worker, or office worker adjusting to work-from-home, everyone has their own struggles with the changes the pandemic has forced upon us. Yet, if your gut sense is telling you that these struggles are not equal, you are also not wrong. The pandemic has struck our society unequally and emphasised some rifts in society including the divide between the wealthy and the not-so-wealthy.
According to Credit Suisse Global Wealth Report 2021, the percentage of millionaires (above US$1 million) in Singapore has increased from 3.1% in 2015 to 5.5% in 2020. The number of millionaires in Singapore was around 270,000 in 2020 and is expected to increase to 437,000 in 2025.
Globally, USD 28.7 trillion was added to global household wealth during 2020, an increase of 7.4% while wealth per adult rose 6.0% to a new record high of USD 79,952. Adjusting for exchange rate changes (i.e. the depreciation of the US dollar), total wealth would have risen by 4.1% and wealth per adult by 2.7%. This is while GDP growth stalled or even become negative for most countries.
In Singapore, the economy contracted 5.4% in 2020 but total household wealth increased by 9.4% and wealth per adult increased 8.3%.
With such incongruous statistics, you may be wondering how and where this wealth increase is coming from. Instead of dwelling on whether fate has dealt us a poorer hand, here are 3 things that we can learn from the wealthy (and help us get there too).
#1 The Wealthy Own Stocks
Invest, invest, invest. This is the number one advice in personal finance that is repeated to the point that people start tuning it out like mum’s nagging.
Yet, there is a good reason why investing in financial assets such as stocks is important. Financial assets, including stocks, bonds and other securities, accounted for most of the gain in total wealth in 2020. In Singapore, financial assets form about 58.5% of gross wealth.
If you have invested in US stocks (which make up more than 50% of the global stock market), you would have likely benefited from the 19.6% increase in the US share price index in 2020. In fact, financial wealth per adult increased 8.1% in Singapore in 2020.
#2 The Wealthy Own Property
Aside from financial assets, the wealthy also own real assets (e.g. property and land). Possibly Singaporeans’ favourite investment, property and other non-financial assets form about 41.5% of gross wealth in Singapore.
As the pandemic caused people to stay at home for the most part of 2020, the unplanned savings from travel and other consumption as well as the increased desire for more space when working from home resulted in an increased demand for housing. Almost every homeowner in Singapore would have experienced an increase in wealth as Singapore’s house price index rose by 1.1% in 2020. In fact, both HDB resale prices and private property prices have continued their rise into 2021.
In total, non-financial wealth (including property and land) per adult increased 5.4% in Singapore in 2020.
#3 The Wealthy Take Advantage Of The Low Interest Environment (And Leverage On Good Debt)
Globally, household debt fell slightly compared with assets. The ratio of debt to assets was 14.8% in 2000, but fell to 14.2% in 2007 and declined further to 13.0% by 2020. In Singapore, the household debt dipped 1% in 2020.
However, not all debt is bad or detrimental to our wealth.
The pandemic also caused governments to intervene in major ways to support households through the economic contraction. One of the key measures was quantitative easing to increase money supply and encourage lending and investment. This contributed to an even lower interest rate environment, compared to the pre-pandemic period.
This low interest rate environment contributed to the rise of share prices and also made it easier and cheaper to finance or refinance loans to acquire real assets. Unsurprisingly, many homebuyers in Singapore took advantage of home loans that were hovering around or below the 1% p.a. interest rate to finance or refinance their mortgages.
Wealth Is Accumulated Over Time
As many people who are somewhat familiar with personal finance or investing will know, the above three ways are nothing new. In fact, they have been repeated so often that it is either taken for granted that everyone knows them, or it is dismissed because if it is so simple to get rich, why aren’t more people rich?
The truth is that wealth is accumulated over time. Investments take time to compound over time and property takes time before you can own and acquire them and you still need to maintain them while hoping that they appreciate with time. Debts need to be used judiciously and appropriately. All these actions take time, knowledge and effort to understand. So start applying them today and eventually you too will accumulate wealth.
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