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What does financial freedom mean to you?
Recently, Singlife conducted a survey in Singapore seeking answers from citizens about what financial indepence signifies. The responses were as diverse as our vibrant city-state.
Some individuals found satisfaction in having a stable job that covers their expenses comfortably; for others, it meant enjoying life on their own terms-whether traveling the globe or pursuing passions. And there are those who simply desire freedom from debt.
Regardless of these unique definitions, participants agreed on one key figure: $612,000 is seen as sufficient to feel financially indepent.
Seeking efficient ways to grow your wealth
Becoming wealthy solely through saving can be a long and challenging journey. For instance, if you save $1,000 each month or $12,000 annually, reaching the aforementioned goal would take about 51 years without compounding.
Investing money into different assets offers a faster path to financial freedom. Let's use bonds as : currently, Singapore Savings Bonds provide a yield of 3.1. With this rate, you'd still require approximately 30.5 years to reach the $612,000 mark-20 years less than saving alone.
But what if you invested your money in the Singapore stock market? According to SPDR STI Exchange-Traded Fund SGX: ES3, the historical annual return of Singapore's Strts Times Index ^STI was 6.7, based on returns from its inception in April 2002 till June 2024.
If you get a consistent 6.7 per year return, reaching financial indepence would take roughly 21 years instead-without considering divids!
Starting Early and Staying the Course
In theory, investing in an ETF every month for over two decades should be strghtforward: buy and hold without making any adjustments.
Unfortunately, in real-life scenarios, investors often get swayed by stock market fluctuations, leading them to buy or sell ETFs at the wrong times.
For instance, Morningstar NASDAQ: MORN, a global investment research firm, reported that US-based investors who pursued this strategy saw disappointing results:
In their most optimistic scenario, these investors would have earned about 4.8 annually in returns.
In their most pessimistic model, the returns were significantly lower at just around -0.1.
Ultimately, it's your capacity to remn calm during market volatility that truly makes a difference, not merely your selection of investment vehicles.
At The Smart Investor, we believe that timing the market is a fool's errand. While the idea may seem appealing, decisions based on short-term predictions often in losses rather than gns.
Seeking guidance from financial experts and focusing on long-term strategies will yield better results for most investors.
We invite you to download our beginner's guide here to help make your investment decisions with more confidence and reduce common mistakes.
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