How to earn $1 million by age 40 (or 35)? As a Singapore Investor?

  I came across this article by the Straits Times recently. It profiles a few young couples, titled “On the Fast Track to $1 million”. The goal was to hit $1 million combined as a couple, and to hit it as soon as they could. $1 million by 40 is the next big thing? Hitting $1 […]
The post How to earn $1 million by age 40 (or 35)? As a Singapore Investor? appeared first on Financial Horse.

I came across this article by the Straits Times recently.

It profiles a few young couples, titled “On the Fast Track to $1 million”.

The goal was to hit $1 million combined as a couple, and to hit it as soon as they could.

Hitting $1 million net worth is an elusive milestone goal for many. 

Being able to hit $1 million by a young age requires some combination of the following:

1. Starting out with a high paying job (eg. Investment banking, law, tech etc)
2. Rich parents
3. Being aggressive (and lucky) with investments

Some of which is frankly beyond your control.

Looking at the examples in the article, it looked like most of the young couples profiled would be able to hit the goal some time in their 30s.

Which got me thinking…

Is $1 million by 40 (or 35) a realistic goal – and can we achieve it through smart financial planning?

Wealth building is a lifelong journey and there are fundamental money habits that can help you achieve your goals. 

What do I mean by this?

POSB talks about 4 money habits in your financial journey: Save, Protect, Grow, and Retire. 

I would say that early on in your wealth journey, the emphasis is on SAVE and PROTECT.

GROW will be important throughout your entire journey, and with the compounding effect, investing will increasingly become a critical pillar to growing wealth so that you enjoy a comfortable retirement. 

Let’s discuss each money habit in more detail. 

Disclosure: This post is sponsored by POSB. All views and opinions expressed in this post are from Financial Horse.

The first money habit, SAVE, is the benchmark. 

This is really the no.1 principle. 

If you can’t get this right, your journey will be very challenging. 

You need to earn more than you spend, and start saving.

My advice for saving is to understand yourself, and identify your blind spots.

If you’re a high earner but also spend like a Boss, then you want to have a realistic chat with yourself on whether you should be spending less, or whether you should be earning even more (so that you can save more even after your spending).

If you’re very good at managing expenses, that’s fantastic (pat yourself on the back and keep it up). The next step is to focus on being able to earn more.

The focus here is the differential between what you earn and what you spend.

Either you increase what you earn, or you lower what you spend – but ideally you do both.

With your liquid cash that is sitting around, you want to park them in a high yield savings account like DBS Multiplier or POSB Save As You Earn (SAYE).

You can get up to 4.1% interest these days on a high yield savings account.

On $100,000, that’s about $4,100 a year.

There’s no reason not to be doing this, otherwise you’re frankly just leaving money on the table.

Just do it.

On insurance.

My take is that at a minimum you want:

1. Health (Medical) Insurance, and 
2. Term Insurance (pays out in event of death)

Home insurance is in my view a must-have as well (it’s a small payment that saves you a lot of headache if something goes wrong), but I know some people skip it and frankly it’s your call.

Critical Illness, Disability insurance etc are very good to haves, but ultimately a personal preference.

The reason why insurance is so important, is that it protects you against tail risks.

Let me put it this way.

If you work incredibly hard in your 20s and saved up $500,000.

And in your 30s (touch wood) you are diagnosed with cancer.

Nobody thinks this will happen to them, and yet we all have heard of people where this unfortunate scenario occurred.

If you don’t have medical insurance, the medical bill is going to wreck your financial journey.

Not only for you, but oftentimes impacting your loved ones as well. 

This not something you want to be worrying about when you are sick.

So insurance is protection against tail risks, and it’s non-negotiable in my view.

Nobody is saying to get the most fanciful insurance. 

Get a basic Health insurance if you don’t want to spend too much on it.

Just make sure you have one.

I would say when you’re trying to make your first million.

SAVE and PROTECT form the base pillars.

You want to earn more than you spend, save that money, and protect yourself from tail risks.

Once you have sufficient emergency funds, and insurance to protect yourself against large medical bills and loss of income, you have a strong and stable base to accelerate wealth-building. 

You can then concentrate on the next stage to GROW your money. 

If you want a slightly higher yield on cash, yet without taking on equity style risk – consider bond funds. 

Why are bond funds a useful asset class to consider?

Bond funds can serve as a stabilizing force in an investment portfolio, compared to riskier assets like standalone stocks.

Typically, it would be difficult for retail investors to access high quality corporate bonds due to high minimum purchase requirements and transaction fees. 

Bond funds allow you to access a diversified bond portfolio with lower overall costs. 

DBS/POSB offers a range of fixed income solutions. These bond funds below offer a higher yield that can help in your wealth building journey:

• 4.79% p.a*. portfolio yield with CIO Liquid+ fund 
• 4.66% p.a.* portfolio yield with Nikko Short Term Bond fund
• 4.23% p.a* portfolio yield with DBS digiPortfolio 

*as of 30 September 2024.

More details below. 

I would say if you’re in the early stages of wealth building, the goal for investing is primarily to build knowledge and experience, and not so much on the returns itself.

This knowledge and experience will compound multi-fold in the later stages of wealth building. 

So at this initial stage, go out and experiment with different asset classes, and don’t be afraid to take on some risk.

It is only with experimentation that you can learn what kind of investor you are, what type of asset classes you are comfortable managing. 

All these experiences will help build up confidence and expertise – all of which will stand you in good stead in the future. 

At this stage in your life, the losses are relatively more manageable.

You would much rather lose money at this stage in your life (while you’re younger with less dependants + increasing earning potential), than in retirement.

Any lessons you learn early on at this stage, will also serve you throughout your lifetime – and there is a lifetime of compounding wealth to go.

After all, investing is a lifelong journey.

Assuming you followed the steps above.

You would have started to gain some momentum in your wealth building journey. 

What next?

Continue to build on the fundamentals – which is SAVE and PROTECT.

But now, you would have also gained more confidence as an investor.

With more clarity on your investment style and strategy, you can choose to ramp up GROW even further. 

One of the key questions that you may want to ask yourself – especially as you have passed the initial experimentation stage. 

Ask yourself – do you prefer to be a passive or an active investor?

If you’re passive, then you can focus on building up stakes in diversified low-cost ETFs like the S&P500 or an all-world index.

If you’re active, then you need to commit to doing whatever it takes to understanding investing, and to outperform the market.

For obvious reasons I myself am an active investor.

And I would say if you can master investing, the monetary payoffs can be extremely rewarding.  

But I would also say that active investing is not for everyone.

It’s a long and tough journey, with a lot of complexity to master.

Whether you choose a more passive or active approach (or a little bit of both), the end result is still to GROW.

You want to focus on growing your money, and investing is the critical piece of the puzzle here. 

POSB offers a range of fixed income solutions that you can consider to GROW your money. 

DBS CIO Liquid+ Fund: Portfolio Yield 4.79% p.a.*

DBS CIO Liquid+ is a diversified bond fund that aims to deliver returns that outperform money market fund returns. 

The highlight is the flexibility of daily liquidity. You can redeem your investment anytime without penalty fees, and also receive quarterly dividends. 

Nikko Short Term Bond Fund: Portfolio Yield 4.66% p.a.*

The Nikko Short Term Bond Fund invests in short-term bonds, such as government and corporate bonds. 

It offers potential yield enhancement over CPF/SRS and money market fund rates.

SaveUp Portfolio: Portfolio Yield 4.23% p.a.*

SaveUp is a readymade portfolio of high-quality fixed income funds, offering diversification, and low management fees.

*as of 30 September 2024 

I did a more detailed review on these bond funds previously, so do check it out for more details. 

To counter inflation and grow wealth for the long term, accumulating high quality assets is key.

You can do this by building a diversified investment portfolio of real estate, stocks and REITs, ETFs, bonds, unit trusts etc. 

You can also consider supplementing with insurance savings plans e.g. endowments and annuities. 

As discussed above, you can choose a more active management style or passive style depending on your investment personality, as well as the type of investment according to your risk appetite. 

The key is to just keep going. 

Dollar-cost averaging is a good technique to consider as it ensures you stay on track to reach your investment goals. 

This is because the impact of compounding becomes more dramatic the longer you stay invested.

Even small, consistent investments can grow into substantial sums through compounding. 

The key is to remain patient and allow time to maximize compounding’s wealth-building potential. 

With Invest-Saver, you can set up a regular savings plan to GROW your money.  

You can start with small sums of money. 

The key is to make investing a priority and keep going. 

Invest-Saver allows you to invest in different investment products, including ETFs, Unit Trusts and managed portfolios (digiPortfolio).

Plus, enjoy zero fees for 6 months when you set up a regular savings plan on DBS digiPortfolio, Unit Trusts or ETFs! 

Terms and Conditions apply. Find out more here.

In the last stage of wealth journey, you would have built up a sizeable nest egg and investment portfolio. 

Now, you’re starting to think of retirement.

What next?

In the USA, there is a retirement guideline rule of thumb called the “25x rule”. 

The idea is that if you save up 25 times of your annual expenses, you have enough money to retire. 

So for instance, if your annual spending is $100,000.

Then once you have $2.5 million you are “financially secure”.

As long as your investments return 4% a year, that’s $100,000 a year or enough for you to get by.

That’s what retirement experts call the “Safe Withdrawal” Rule – and 4% is viewed as generally safe.

The 25x rule is a guideline that can be used to think about your ideal retirement sum. 

Some people may choose to lower their expenses to adjust to a reduced income in retirement.

While others may also try to boost their passive income flows. 

As Singaporeans, fortunately for us, we have the benefit of CPF so this usually forms the starting point when think about retirement.   

You can use CPF board’s retirement calculators to get a clearer picture of what retirement can look like for you.   

In addition to CPF, for many retirees, the goal is to have an investment portfolio that generates passive income flows. 

This portfolio can include real estate (e.g. rental property), blue-chip stocks and REITs that generate yield, government bonds (e.g. SSBs, T-Bills), bonds (e.g. corporate bonds, retail bonds, bond ETFs, bond funds), as well as retirement income plans (e.g. annuities) etc. 

Thus, not only do you have your basic needs covered, you have some additional cash flow for comfortable living. 

So there you have it!

My take on how to earn $1 million by age 40 (or 35). 

POSB’s 4 Money Habits is an excellent way to visualise the 4 key quadrants of wealth building:

1. Save
2. Protect
3. Grow
4. Retire

If you want to GROW your money, DBS Invest-Saver plan is a good option to consider. 

Enjoy zero fees for 6 months when you set up a regular savings plan on DBS digiPortfolio, Unit Trusts or ETFs! 

Find out more here. 

Terms and Conditions apply. 

Ready to build better money habits? Start your journey with the POSB Money Habits Tracker and transform your finances. 

Would love to hear what you think, share your thoughts in the comments below!  

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Disclosure: This post is sponsored by POSB. All views and opinions expressed in this post are from Financial Horse.
 
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   I came across this article by the Straits Times recently. It profiles a few young couples, titled “On the Fast Track to $1 million”. The goal was to hit $1 million combined as a couple, and to hit it as soon as they could. $1 million by 40 is the next big thing? Hitting $1
The post How to earn $1 million by age 40 (or 35)? As a Singapore Investor? appeared first on Financial Horse.