In today’s environment of rising prices and expectations for a better quality of life, no one can blame us for feeling like certain financial milestones are out of reach.
However, understanding how hard something is to achieve is only possible by looking at the underlying data. One of the most commonly-cited landmarks for young people growing up in Singapore is the goal of reaching a $100,000 investment portfolio by the time we reach 30 years old.
While that might seem like an unattainable number for many people in their early or mid-20s, we crunch the numbers to determine if it is really so out of reach.
Understanding The Average Wage In Singapore
First off, we need to understand the average, or median, salary of young Singaporeans today. According to the Labour Force in Singapore 2023 report, the median monthly salary (excluding employer CPF contributions) was $4,550.
Of course, younger workers generally start out earning less than this headline amount. By looking at the median monthly salary across three age groups (15-19, 20-24, and 25-29), the median young Singaporean would have a monthly take-home pay of $1,350, $2,604 and $4,000 respectively – excluding employer CPF contributions.
Saving and investing a sizeable amount of your disposable income – i.e. cash after CPF contributions and necessities such as utilities or groceries – is not easy but there are certainly still ways for investors below to reach these goals.
Read Also: What’s The Median Salary In Singapore (At Every Age, Gender, Education and Race)
Starting Your Investing Earlier Helps
Of course, that old saying of “time in the market, not timing the market” is even more true when just starting your investment journey (hopefully as young as in your teenage years).
While the median across the three age groups may not be very high in nominal terms, a small contribution monthly could compound strongly over time. In terms of Dollar Cost Averaging (DCA), which means investing into the market at regular intervals – that typically means monthly – young Singaporeans can start building an investment portfolio that has momentum.
So, how much would you need to contribute per month to reach $100,000 in your investment portfolio by the age of 30? That very much depends on when you start putting money to work.
For most investors globally, putting your money into the stock market will yield the best “average” return over the long term. When we say “long term”, your investment horizon should be least 10-15 years if not longer. In other words, you should not be relying on this portfolio for your everyday expenses or even nearer-term payments for your university education, home downpayment or renovation costs.
Over the long-term, global equities have, on average, given investors a total nominal return in the range of 8% to 10%. While the future is never certain, this figure has a track record of holding relatively steady over the past 100 years.
So, even if you’re a fresh-faced 15 year-old with some spare “hong bao” money – or savings from your side hustles – investing just S$300 per month for 15 years you help you reach the $100,000 goal by the time you’re 30.
Over the 15 years horizon, you would have invested $54,000 – or about half of your eventual $100,000 portfolio. The other $46,000 would have earned through “time in the market” compounding the 8% market returns over 15 years.
To better visualise this figure, you can see the dark blue line in the chart below representing the overall portfolio growth over 15 years, while the light blue line represents the cumulative $3,600 investments (amounting to $54,000) over the time frame.
Read Also: How Much Money You Should Have In Savings (And/Or Investments) According To Your Age In Singapore
Delaying Means More Taxing Investment Amounts To Meet $100k Goal
What if you delayed your start date and only began investing 10 years later at the age of 25 years old – only when you start your actual career proper. This is not a far-fetched scenario for many of us.
Well, your monthly contributions would have to increase 5-folds to around $1,500 a month for your investment portfolio to hit $100,000 by the time you’re 30 (based on that average 8% annualised return).
You can see this difference in the chart below (dark blue lines vs dark orange lines). At the same time, you can also observe that your cumulative investments – light orange line vs light blue line – would be close to 1.5x at over $75,000 (compared to $54,000 if you started 10 years earlier).
The shorter the time horizon, the less time you have to compound your returns. Moreover, you would have to contribute much more to your portfolio each month to reach the same goal.
There Will Also Be More Volatility And Less Certainty Over Your Portfolio Returns
Starting at age 25 would mean having to really ramp up your monthly contribution, with the $100k goal only achievable if you invested a whopping $1,500 per month for five years.
At the same time, you will also have less certain of your average return from the stock market given the volatility involved in stock investments. Remember the long-term returns of 8% need to be earned over the long term, and the shorter your investment horizon, the less certain this number may become.
While this is an interesting hypothetical scenario for young Singaporeans, it also does shed some important truths about the benefits of starting to invest earlier. Indeed, small contributions from a younger age are much easier to manage than having to cough up close to 40% of the median salary when you’re 25 to 29 years old ($1,500 monthly contribution, when the median salary is $4,000).
If we look at the percentage terms of the median salary when you start at 15 years old, that S$300 amount works out to just 22% of the median salary of $1,350 across the 15-19 age group, 11.5% across the 20-24 age group, and 7.5% across the 25-29 age group.
Obviously, you can always invest more when you are earning more in you later years. But, do note that your financial obligations may also rise as you possibly care for you ageing parents, purchase a home and start a family in your later years.
Being Disciplined And Patient When Investing
Even if young Singaporeans aren’t able to meet the $100,000 investment portfolio goal by age 30, the option is there to start earlier to help that compounding process.
It also makes it much easier being able to contribute a lower percentage of your disposable income rather than having to make it up later in your career. Understanding how much money you can reasonably invest from a young age is critical as young people will still want to balance enjoying their life with planning for their future financial goals.
Whatever path you choose, reaching an investment portfolio that’s worth $100,000 by the time you’re 30 is certainly achievable but the key is to remain disciplined and patient over a long time horizon.
Read Also: Reaching $100K by 30: 5 Obstacles That May Stop You From Achieving This Financial Goal
The post How Difficult Is It For The Average Young Singaporean To Achieve A $100,000 Investment Portfolio By Age 30? appeared first on DollarsAndSense.sg.
