In short, saving money is essentially hoarding. You might make a little extra on interest from a savings account, but it won’t amount to much.
Investing on the other hand is about growing your money though the purchase of assets that appreciate in value or generate income. These assets can include stocks, bonds, art, and property.
You’ll need to save and invest to reach your financial goals.
Why a Savings Only Approach Doesn’t Work
The price of everyday items rises over time due to inflation. If you check out the Consumer Price Index (CPI), you can see just how much prices have risen.
In recent years, the CPI has averaged about 4%. Meanwhile, the money you’ve left under your bed has not risen with inflation. It has actually decreased in value. So assuming that the CPI stays at 4% over the next 10 years, your money will actually be worth about 30% less at the end of that period.
Even if you put your savings into a savings account, the amount of interest you’ll earn won’t even come close to the 4% CPI.
Investing In Equities Is a Good Hedge Against Inflation
You don’t need a huge amount of capital. $1,000 is enough to get started. Thankfully, there are plenty of investment products on the market that can beat inflation, such as Singapore REITS, which yield as much as 9%.
If you have the capital, you can even invest in perpetual income bonds, which give you regular payouts.
Another good thing about equities is that they’re highly liquid. You can buy and sell them in a matter of minutes.
You Can Also Boost Your CPF Account With Equities
If you intend to rely on your CPF account to retire on, you should know that the CPF only grows at 2.5% with your Ordinary Account (OA) and 4% with your Special Account (SA).
If you have more than $20,000 in your OA and more than $40,000 in your SA, you can invest a portion of it in stocks. That will allow you to beat CPF’s 2.5% return with something like a Singapore REIT.
The Stock Market Isn’t As Scary As You Think
The stock market can be dangerous if you play the trading game like you’re in a Hollywood movie. Being a passive investor is a safe and profitable way to use the stock market to boost your savings.
Products like REITs, ETFs, and bonds don’t require you to actively buy and sell. You can choose to buy only if you understand the risks and rewards involved. Once you choose the right ones, all you need to do is sit back and let the dividends come in.