AMA Christopher Tan
Asked on 22 Jan 2019
If you have started working for a few years only and still closer to a starting income level, I suggest postponing the thought of "retirement planning".
Focus on growth, focus on learning.
You are just starting out on your working journey.
Retirement planning talks are easy once you are the right level of income
and at the right stage in life.
The conventional wisdom on the "power of compounding returns" is true but that should not be a reason to bring retirement into focus right now.
That is mere discussion using math.
I don't know where you are at right now.
But from experience, there will likely be a lot of life changes for you in the next 10years.
Wedding? First house? Kids birth? Kids cost? Home upgrade? Parental demise? Inheritance? Career change?....
Retirement planning needs assumptions and it's just easier at a slightly later stage. That's where I found a sweet spot with many.
But I'm not saying you don't save and invest.
It is a right habit to cultivate early on. Saving up gives you the room to do things. Pursue what you like and can hopefully develop a long term skill at that pays you well.
Investing early on gives you room to learn how to be more savvy. Not many here have experienced the losses from 2008 financial crisis. But without the pain of losses, all talks of compounding returns are hypothetical.
Putting some money aside to experiement with things early on is very useful.
I started an ice cream business naively at the age of 26 and it flopped. It flopped hard and I burnt a hole in not just my pocket but my wife's pocket.
But there were great learning points fromt this failure. It may yet be the best investment.
All this can be done with saving and investing without ANY expectation of retirement. Again, retirement planning needs assumptions and it's just easier at a slightly later stage. Hope this sharing works.
Hi Vera, thank you for your question and sorry for the late reply. I will say that it is never too early to start although practically speaking, most people start about age 30. If you are able to start at age 27, that will be good as it is easier to reach your goal when you start earlier.
This is how you can start:
A. Building your foundation
Make sure you have an emergency fund - 3-6 months of your expenses in cash/SSBs
Make sure you are sufficiently insured - you can use this link to assess your need
B. Investing For Your Future
Invest into a portfolio of low cost instruments such as ETFs or Dimensional funds. Please avoid expensive Unit Trust or ILPs. Low cost = less than 0.5% p.a in terms of management fees.
As you are young and have a long time horizon, and if you have build a strong foundation (above), you can consider putting more into equities. Some ETFs you can consider would be:
Bonds - ABF Singapore Bond Index Fund
a. SPDR S&P500 ETF
b. SPDR Straits Times Index ETF
c. Db x-tracker MSCI Pacific Ex Japan UCITS ETF
Do note that the more you have into equities, the more volatility (ups and downs) you have to be willing to stomach. The good thing is that in investing, if you can stay invested for a long time (10 years), you have a very good chance to get the returns you need. There is no need to try and guess whether you should get out or stay invested based on news etc. Just stay invested in the ups and downs of the market.
Hope this helps.
It is relevant to start planning for retirement as early as possible. The first thing you should do is to accumulate an emergency fund with 4-6 months of expenses and keep this aside in a savings bank account so that it is liquid and can earn some return. The remaining excess amount can be used for investment purposes so arrive at your retirement goals.
One option to start investing is the All-Weather strategy. It helps you to get stable returns throughout different market conditions. At Kristal.AI, we have two versions of the All-Weather strategy, name All Weather Unleveraged Kristal and the All Weather Aggressive Kristal. These Kristals differ based on risk appetite and can help you implement the All Weather strategy and protect you from adverse market conditions.
You can read more about the strategy here.
I work at Kristal.AI, and it's my passion to evaluate various upcoming investment opportunities.
Why not? I wish I had the wisdom back at your age to start retirement planning. Focus on learning about yourself, your personality, your risk appetite and how you handle money. Set aside emergency funds and read up on investing in the mean time. Once you have the funds set aside, depending on your risk appetite find a suitable investment instrument and stick to it. Learn all you can and focus on it. That said, don't mix insurance and investments i.e avoid endowments, ILPs and unit trusts. They will require huge capital to get to a decent maturity amount, and fees can kill your profits. You are better off learning how to manage your own portfolio