I have met some incredibly wealthy people in my time. We are talking here about some seriously rich people.
These are not your fly-by-night, run-of-the-mill, I-have-just-won-the-lottery types of rich people. Instead, they are people who have amassed huge fortunes over time, gradually.
Rolling in money
In some cases, it has been family wealth that has been passed down over the generations. For others, the wealth has been generated through many years of hard slog.
But what is interesting is that these rich families want to continue to grow their wealth, even though they are already rolling in money.
Now many of us might say that it is easy to make money when you already have lots of it to start with. There is some truth in that glib remark.
Rich people are, in general, able to grow their wealth because they can afford to live below their means. Or put another way, they are able to spend less than they earn.
Why? It is simply because it would be almost impossible for them to spend everything that they make.
Money to throw away
But here is the important bit. The difference between our total income and our total expenditure is known as our disposable income. It is called “disposable” because we can dispose of the money as we wish.
The amount of disposable income that we have is, to some extent, within our control. If we spend everything, and more, that we earn then we are not going to have much, if any, left over.
But if we can manage to spend less than we earn then we will end up with some disposable income.
By itself, disposable income is quite useless. That is unless we do something constructive with the money.
And this is where wealthy people have learnt a valuable lesson – leaving money to fester in a bank account is possibly the worst thing that anyone can do.
Money should be put to work to generate even more money, which then goes on to generate more disposable income. It can become a virtuous money-circle that could produce increasing amount of money, perpetually.
And that, quite simply, is how the rich get richer.
But guess what? We can do the same too. We, too, can put our disposable income to work in one of the four main asset classes, namely, cash, bonds, property and shares.
Currently cash is deeply unattractive. So too are bonds. It just doesn’t make any sense to lend our money at ridiculously low rates of interest. And in some instances, investors are even paying for the privilege to lend money to sovereign states. That makes even less sense.
Shares, however, are arguably the best of the four asset classes, given that property - apart from Real Estate Investment Trusts - is out of reach for most of us.
Investing in shares used to be beyond the reach of many of us in Singapore too. But it isn’t anymore.
Whether your monthly disposable income is measured in the hundreds of dollars or in the thousands, we can get exposure to the stock market.
For instance, we can invest as little as S$100 a month in a stock market index tracker through a POSB Invest-Saver Regular Savings Plan.
An investment of S$100 a month might not seem like much. But since its inception in 2009, the Nikko AM Singapore STI ETF has delivered an annual total return of 16%. In other words, the S$7,020 investment would have compounded into S$11,667.
For those with more disposable income, investing has just become a lot more interesting too. This follows the cut in Singapore’s minimum board lot size from 1,000 shares to 100.
It means that shares with lofty price tags such as United Overseas Bank, Jardine Matheson and Dairy Farm are no longer the preserve of just the wealthy.
It is often said that the rich invest in time, while the poor invest in money. But it doesn’t have to be like that. We, too, can invest in time, if we put our disposable income to work for the long term, immediately.
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