Why I Will Continue to Talk About Investing?
Christmas season is upon us! There will be lots of gatherings and good food. For me, this is also the time to catch up with old friends.
As the “investing” guy (that’s what my friends called me), I told myself, “Maybe I should not talk about investing during Christmas, not everyone wants to hear about it.”
And that was my intention at every gathering, I would talk about the world, politics, gossips, economy (deliberately avoiding investments). Anything under the Sun but investing.
It was going well until this one gathering with my two school mates. Both had not started investing and I had been trying to “convert” them for ages to no avail.
However, something changed at this gathering. One of them shared the good news that he was having a second child and the baby would be due next year. I was so happy and delighted for the family. We congratulated them and toasted to the newborn-to-be.
However, after the celebrations, I pulled him over to a corner, being very serious and concerned. I said,
Pete: “Dude, it is great that you are having a second child. But now, it is no longer an option for you to NOT invest.”
Friend: “But now my expenses have doubled! I am in an even worse position to invest. I won’t have much savings left to invest.” he said.
Pete: “Yes, indeed your FUTURE EXPENSES is going to double and your salary will not be able to catch up.”
I went on to share with him my concerns and he was nodding his head in silent.
Why Do I still Insist? Rather why do I think with a second child, he no longer has an option, and he MUST invest?
When is Investing Optional?
For some, investing could actually be optional.
For example,
If you are single and do not have any dependent.
If you inherit some wealth from your parents
If you have a very high income job and you can save lot (like 70%)
If you are married but both of you are very high income earners, save a lot and not going to have any kids.
In general, it is possible to live off solely your SAVINGS for retirement if (1) your lifestyle expenses are low, AND (2) you are blessed with a very high income AND (3) you save a lot of that income.
However for the rest, who are not able to fulfil the above 3 criteria, investing is an absolute must if you want to catch up with your future expenses comfortably.
For example, if you have an average monthly income of $8,000 and due to family expenses you could only save 30% (which is considered high in many cases). You will be saving $2,400 each month.
On average, an adult working lifespan is about 45 years. That means you would have saved up $1,296,000 in total. That is not bad!
However, how much future expenses would you have?
For example, kids growing up and their education, annual family holiday, car purchase, house purchase.
Frankly, so long you have 1-2 kids, it will easy wipe out the $1,296,000. Not to mention there is also inflation going against you, reducing the value of your savings each year.
Then How Did Most People Make It Through?
The trick that most people employ is “taking loan”. What do I mean?
When you purchase a house, you will take a loan. When you purchase a car, you will take a loan. When you attend university courses, you will take on a student loan. Sometimes, I even hear people taking loan on smaller ticket items like renovation and buying an iPhone.
While many make it through with taking loan, they fail to realise that they are actually borrowing future money.
With every loan, you will need to make monthly repayment and that will eat into your monthly savings. For example, if your monthly savings reduces from $2,400 to $1,500 due to these monthly repayment, your total saving at the end of 45 years will be reduced from $1,296,000 to $810,000.
What Should I Do?
To be honest, it is impossible to avoid these monthly repayment. Everyone needs a house, education and lead a lifestyle. Sometimes, it can be hard to reduce the expenses any further.
Therefore, you should focus on how to make the savings grow FASTER. And the only meaningful way I know is through investing and investing in the stock market is what I prefer. Because statistically, a rolling 20 years period in the stock market has ALWAYS provided positive returns.
What Does This Mean?
It means if your investment period is 20 years, no matter when you start the 20 years period, you have NEVER lost money. Your worst average returns across the 20 years is 6.4% annually.
I am a person of numbers, and I prefer to rely on statistics for my decision. Very seldom in life where statistics is ABSOLUTE and when I see it, I want to be part of it.
Now if you put in your monthly savings of $1,500 into the stock market and let it grow for 45 years at 6.4% annually (which is not a huge return to be honest), what would be your total savings grow to?
The answer is $4,461,754. Over $4 millions. This is beating even the initial higher savings of $2,400/month.
Is $4 million enough for your future expenses and maybe even your children’s expenses like education and housing?
For me, it is enough and I know that I will put in system for these $4 millions to continue to grow and pay dividends, build more financial buffer.
And this is why I think investing is a MUST for almost everyone. What about you?
This is why I will continue to talk about investing in the future. I will not stop. Because I know it is something everyone needs, including you who is reading,
See you soon!
Investing Always,
Pete
