It is funny that we were taught or told a lot about Make$ (as an employee), Save$ and Spend$ in the school or by our parents. But Grow$ is always an optional topic. In fact, Grow$ (investment) is a must for everyone!

So why do we need to invest in the first place?

It's because money will become “smaller” in the long term due to inflation. We need to “grow” it back to compensate the value lost.

What does this mean?

Inflation is a fancy way of saying that prices of things are going up. When the cheapest bus fare goes from $0.10 to $0.70, or a movie ticket increases from $5 to $9, that's inflation. Another way to look at inflation is that the buying power of the dollar is going down.

Average inflation has been running around 2% in Singapore, which means for every dollar you own, you're losing 2 cents every year. This adds up very quickly, and in ten years, at the present rate of inflation, all your dollars will have about twenty cents taken out of them. And in 30 years time, your $1 will only be "worth" about 50 cents!

So the first objective of investing is to beat the inflation.

May be you do not realise that most of us have already started investing. Where? At your bank savings account! Didn't you get the interest for the money you put in with the bank? However, the interest you get is quite pathetic, right? Currently, the interest rate is much less than 1%. It can't beat the current inflation rate of 2-3%. That is why we need to look somewhere else to put our extra money (extra money = money that is in excess of the saving that is reserved  for emergency).

If you manage to invest your money somewhere and get a return equal to the inflation rate every year, you have made your money stay even with the inflation.

If you manage to invest your money somewhere and get a return more than the inflation rate every year, congratulations! You have not only beaten the inflation, you have also fulfilled the second objective of investing.

The second objective is to build up wealth so that when you are too old to work anymore, your savings and investment can support yourself and your dependents for the rest of your lifetime.

Of course, to get high return of investment throughout your lifetime is definitely not an easy task. This is because investments with high returns (e.g. Stocks) involve relatively higher risk than those with guarantee but lower returns (e.g. Fixed deposit). There is no such thing as the best type of investment. Everyone is a different human being and thus has different mindset that shapes his or her behaviour, and thus the choice of investment.

Whatever your choice of investment is, the best time to get started investing is when you're young. The more time you have to let your investments grow, the bigger the fortune you'll end up with. For example, if you start saving $1 a day when you are 19 ….. 

 

Age	Save only, not invested ($)	Invest with 10% return annually ($)
20	365.00	365.00
30	4,015.00	6,763.88
40	7,665.00	23,360.91
50	11,315.00	66,409.35
60	14,965.00	178,065.91
70	18,615.00	467,674.27

 

 

But if you start saving $1 a day only when you are 39.....

 

Age	Save only, not invested ($)	Invest with 10% return annually ($)
40	365.00	365.00
50	4,015.00	6,763.88
60	7,665.00	23,360.91
70	11,315.00	66,409.35

 

If the money is not invested, at age 70, the difference is only $7,300 (18,615-11,315). But if you invest the money annually, at age 70, the difference is $401,264.92 (467,674.27-66,409.35)!

My choice of investment

My choice of investment is investing in businesses of which the companies are publicly listed.

You may be wondering why I am not saying my choice of investment is trading stocks. Aren't they the same? Yes, they are the same in terms of buying and selling activities, but the investment mindset is different.

I am looking from a business investment point of view. My primary focus is on the long term prospect of the businesses, not the short term fluctuation of the share prices.

I do not trade stocks. I invest in companies whose businesses I understand, and hold the stocks as long as the companies continue to do well.