Financial security is a common goal, but in today’s volatile market, many wonder whether it’s even achievable. With stock market fluctuations, economic recessions, inflation, and global uncertainties, financial planning may seem daunting. However, achieving financial security is not only possible but also essential—it just requires the right approach, careful planning, and, most importantly, starting early.
The Importance of Starting Early
One of the key principles of financial security is starting as early as possible. Time is a powerful tool for building wealth, primarily due to the magic of compound interest. Compound interest works by reinvesting earnings, allowing your investment returns to generate additional returns over time. The longer you let your money grow, the greater the potential gains.
Let’s put this into perspective: If you start investing $500 monthly at age 25 and earn an average return of 10%, by age 65, you could grow over $3 million. However, starting the same investment at age 35 results in about $1.1 million. The earlier you begin, the more time your money has to grow, making financial security much easier to achieve.
Many delay their financial journey, but the magic we seek often lies in the work we avoid. Procrastinating can reduce long-term wealth, so the most crucial step is simply starting—no matter how small.
The Impact of Inflation
A major threat to financial security is inflation. In Singapore, inflation has been around 3%, which erodes the value of money over time. If your money isn’t invested and growing, inflation will slowly eat away at your savings.
For instance, if you place $50,000 into a savings account earning 1% interest annually while inflation sits at 3%, the purchasing power of that money decreases over time. After ten years, the real value of your $50,000 would drop to approximately $37,000. To stay ahead of inflation, you need to grow your money at a rate that outpaces it, which requires a sound financial strategy.
The Right Strategy: Tailored to Age, Goals, and Risk Appetite
Achieving financial security isn’t about following a one-size-fits-all approach. Your strategy must align with your age, financial goals, and risk appetite.
Age: Younger individuals can afford to take on more risk for potentially higher returns, as they have more time to recover from market downturns. A larger allocation to equities provides opportunity for greater capital appreciation over a long period. Younger investors are generally less dependent on cash flow coming from investments as they would still be employed, and with a longer investment time horizon they are able to ride out any fluctuations or downturns.
70% into equities however it also depends on their risk appetite.
Goals: Financial strategies should reflect your goals. Are you saving for retirement, a home, or an emergency fund? Each goal requires a different approach. Long-term growth is essential for retirement savings, while liquidity is critical for an emergency fund.
Risk Appetite: Understanding your risk tolerance is vital. Risk-averse investors may prefer more stable assets, but avoiding risk can also reduce returns. It’s important to balance risk to meet your goals, especially considering inflation.
Tailoring your financial plan based on these factors increases your chances of achieving financial security, even in uncertain times.
Time is Finite—Act Now
Time is a finite resource, and delaying financial action can result in missed opportunities. As we’ve seen, the longer your money is invested, the more it benefits from compound growth. Moreover, doing nothing is not an option, especially as inflation erodes your savings.
While some hesitate due to market volatility, the cost of inaction is often greater than any short-term market dip. Dollar-Cost Averaging (DCA)—investing a fixed amount regularly using Singlife Savvy Invest —helps to reduce the impact of volatility and grows wealth steadily over time.
Is Financial Security Possible in This Uncertain Market?
Yes, financial security is possible, but it requires discipline, early action, and a strategy tailored to your individual circumstances. Despite market uncertainties, a well-planned, long-term approach can help you navigate challenges and achieve your financial goals. Start now, leverage the power of compounding, and adjust your plan based on your age, goals, and risk tolerance.
