Retirement planning: How to build your wealth for retirement

view original post

The third pillar of our wealth accumulation for retirement would be cash investments.

Mr Vinod Nair, CEO of MoneySmart said his recommendation is that people should learn how to invest their own money.

There are three main categories that most investors consider. They can choose to invest directly in stocks. The second option is exchange-traded funds (ETFs), which allow one to invest in a basket of securities that track an underlying index. The third category is unit trusts, which invest in a group of companies around certain themes.

To mitigate investment risks, the advice is to diversify.

“If you don’t put all your eggs in one basket and you diversify across different asset classes, across different geographies and markets, then it gives you a higher chance of success with a better outcome, with lower risk,” said Mr Rhee.

“The second thing is really focused on costs. Reducing costs directly impacts returns. Because if you save cost by 1 per cent, that’s 1 per cent more of your return. And if you invest for 30 years, that 1 per cent compounds to make a difference of over 240 per cent. And that’s a huge difference in returns over 30 years.”

As all markets go up and down, one way to stay invested is through dollar-cost averaging.

“You don’t time the market, and you’re just setting aside a fixed amount of money every month or every year, whatever that period is for you to invest into these instruments. So when it’s low, you end up getting more units; when it is high, you end up getting fewer units but it’s a prudent way instead of trying to wait for the dip and buying the dip,” said Mr Nair.

“It’s a passive strategy. If you just do it consistently, don’t touch it, don’t take it out. And leave it there over a long period of time, your money will compound and grow for you over the long term.

“The only time you need to re-evaluate is when fundamentals change. So if it comes to a point where you believe that China no longer is on a growth trajectory and maybe it’s on the decline, then that’s where you might want to re-evaluate whether that’s the right option.”