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Options And Opportunities
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WEALTH ACCUMULATION
Aug 21, 2015 |

I noticed that many of the articles in investment magazines have already done a generally good job in providing us information on how to invest and the types of investment products that are available. So this time round I thought of doing something different instead – on the why of investing. Let’s stretch our minds a bit more to other possibilities that we might not have considered when we started investing. Sometimes it is good to re-examine our motives and from there we can move forward in a more focused way.

Living a dream

My mother-in-law was not keen on vacationing overseas, especially via air, all this while. However, a couple of years ago, we urged her to come with my family on a free and easy vacation in Australia. Six months later, we visited Australia again. This time it was initiated by her.

Some of us may indeed end up with a lifestyle that is low cost to maintain like my mother-in-law. But others may change their wants much later on, which may require us to fork out more. The problem only comes about when we did not adequately prepare for such possibilities. It would be good to avoid having regrets in the future because of poor financial goals that we set much earlier on. So we should set for ourselves higher goals, because we have in mind dreamy retirement plans or to cater for new dreams/needs that will be revealed later on in our old age.

An income that never runs dry…

There is an option that few of us have thought about – perpetual income. Wouldn’t it be nice to have set aside a large sum of money by the time we retire and just live on the earnings alone? Especially in this age of medical science where we can live longer than before? That certainly sounds dreamy to many of us and yes it might not be so easy to accomplish. We have to set aside a larger sum of money as well as ensure that our funds then are providing a reasonably good rate of return.

For example, let’s take a married person who is 40 years old. He intends to retire at the age of 55 and have $5,000 a month ‘income’ for the rest of his and his wife’s lives. Let’s assume that the inflation rate is 3% by then, which will require that his monthly income to be $7,790 in future dollars in 15 years’ time. Take a look at the table below to see the estimated required perpetual income retirement fund based on the various after tax rates of return.

After tax rate of return Estimated required retirement fund
4% $9,348,000
5% $4,674,000
6% $3,116,000
7% $2,337,000

As you can tell, the ability to have a higher rate of return on our current savings would make it easier for us to achieve that goal. But that comes with a higher risk level as well! It would be more prudent to try to balance risk and return in our financially independent years by attempting to achieve 5-6% p.a returns. Yes, take some long term calculated risks for a portion of your savings but maintain most of it in money markets, annuities, fixed income and or high yielding blue chip stocks.

Education – looking beyond our shores

Have you ever wished that you had the opportunity to study overseas when it was time for you to attend university? Why not give your children that possibility in the future? Even though at the end of the day they might not need that much because they managed to get a scholarship of their own or they prefer to study locally instead, the fact is that we have created the option for them to do so. It would then be a case of choice and not a situation that is imposed on us and them.

Making a difference

We have read in the news about how Bill Gates and his wife have set up a foundation called Bill and Melinda Gates Foundation. They have set aside about half of their wealth in support of education and health initiatives such as helping low performing schools and controlling infectious diseases in third world countries. Some of us may say that they had so much money anyway. But if we had the same amount of wealth as they did, would we have more likely given 10% or 50% of it away?

It would indeed be a good problem to have when we have too much money, more than what we really need. Some of us may have no children and when the time comes for us to pass on, we could leave a legacy to help others who are in need. They may not know you personally but they will be thankful that there are others who bothered enough to care. So therefore, if we have enough wealth, far beyond what we need to spend for ourselves, we could possibly create a trust that continues to invest the wealth and provide a continuous stream of income to the charity or institution of your choice. Now isn’t that better than a well decorated grave?

What I have come up with is no where exhaustive. It is up to us to come up with our own personal dreams and goals. And if you are able to derive some worthy ones, work towards it with your savings and investments. You will feel motivated and meaning behind all the struggles. And hopefully, that day will come when we or others can enjoy the fruits of our labour. As for me, I am working hard towards building up a perpetual retirement income fund for myself and creating an Ernest Low Foundation for others. How about you?

Ernest Low holds an MBA from University of Liverpool and is the Head of Investment & Wealth Management with AXA Insurance Singapore. He has also written a money management book for kids called Starting Small Finishing Rich.

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