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The big problem playing it too safe with money in our 20s

WARNING: This is Sponsored post for Endowus about its new low-risk product CashSmart. You can support TWS by clicking that link to find out more about it.

As Singaporeans, our culture doesn’t quite favour risk-taking. Not yet, at least.

And it shows – most people’s dream jobs? A stable MNC gig, or the civil service.

This also spills over to other aspects of our lives.

Want to ask someone you like out? Don’t want la, paiseh.

Borrow some money to start a business? Aiya, confirm fail one. Be an employee instead.

Playing a real time strategy game? You’re more likely to turtle than expand.

Now, of course there is nothing wrong with the above.

Stability has its benefits. That said, we’d like to offer another perspective: how not taking any risk, especially financial risk could end up being the biggest risk of all.

To start off, let’s talk about inflation

From 1962 to 2020, Singapore’s average inflation rate was 2.52% p.a – remember this number. It’s very important.

You probably know what inflation is – money losing its value over time. When a bowl of noodles costs $0.10 in 1965, and $3.50 in 2020, you know something is up.

How do we fight inflation?

We invest. Of course, if you’ve read our comic about lower-risk vehicles, you’d know that different investments have their own purposes.

The safer ones are meant to preserve your wealth. The riskier ones are meant to grow it – let’s have a look at some popular investment vehicles in our age groups.

Investments Returns Risk level 
Fixed Deposit 0.5% – 1% Low risk
High Yields Saving Account (after meeting some criteria)  1-2% Low risk, but you gotta jump through some hoops 
CPF OA 2.5% Low risk, but can only be used for very specific purposes 
Endowment plans (capital guaranteed)  1-1.8%  Low risk, but illiquid 
CPF SA 4% Low risk, but very, very illiquid, 

What do you notice? Well, the important thing here is that if you picked anything that was low risk, you would have, at best, only matched the historical inflation of 2.52%.

This is an issue because you’re merely keeping up with inflation – like on a treadmill – never really making your money work for you.

This is not to say that being ultra-safe is not an option. It is, provided you:

  • Save a huge proportion of your income (Please la, this is not most people)
  • Spend extremely little money (see above)
  • Can work sufficient time to work up that savings. (This remains to be seen)

Of course, judging by how everyone’s instagram feed is looking, this is a tiny minority of people. If most of us don’t take on at least some risk, it’s unlikely we’ll be able to retire.

Low risk always almost means low growth

The only thing a 100% ultra-safe portfolio will do when you are broke af? Maintaining and preserving your state of broke-af-ness.

That’s why for most of your 20s, 30s and maybe even 40s – we advocate putting most of their money in a riskier product like a higher risk portfolio of a roboadvisor, or an index fund.

Yes, the prices will go up and down. And sometimes you’ll see seas of red.

But in the long term (20-30 years), the market almost always goes up – and if it doesn’t, then aiya we are more or less screwed anyway.

It’s natural for young people to take risks

Think of all the extreme sports in the world – mountain biking, snowboarding, paragliding – for example.

The athletes who compete in that space aren’t above a certain age for a reason. Because when you’re young, injuries are less threatening – you can generally recover faster.

(Mountain biking in your 60s is definitely possible, yes – but you’ll have to be more careful and make sure you are damn skilled.)

That is precisely the same reason why today’s millennials and Gen Zs should invest.

In your 20s and 30s, your job stability is at its peak. Whatever ups and downs your investments throw at you, you can stomach it more easily – because you’re still earning a salary.

Older folk in comparison, need to take a less risky approach to their money. They’re close to retirement, and cannot afford huge shocks to their portfolio – after all, they’ll be needing their money in the next few years.
They, not you – should be the ones going super safe.

We know that first step to investing is terrifying

Does it hurt to put away money you could have otherwise spent on yourself? Of course it does.

Does it hurt to risk money you’ve earned through your own blood sweat and tears? Definitely.

But here’s something that my co-founder (a risk-averse person himself) told me:

Ironically, by not taking any risks and letting all your money get eroded by certain inflation, you are actually doing the riskiest thing.

It’s like we said before – invest or die.

Stay woke, salaryman.

A message from our sponsor, Endowus

If you’re finding it daunting to invest in the stock market, you might want to consider parking money in something like Endowus Cash Smart.

This is a relatively new product class offered by roboadvisors, and they’re competing against high yield savings accounts such as DBS Multiplier, OCBC 360 and StanChart’s JumpStart account.  Once you have money in Cash Smart, you can easily deploy the cash in the stock market to take more risk.

Now, let us be clear – CashSmart is not the same as the bank accounts and vice versa, but they’re worth serious consideration if you’re looking for a way to get decent interest without doing stuff like salary crediting, credit card spending etc.

The downside is that the money isn’t as instantly accessible – you can’t withdraw funds within the day, or via an ATM for instance. That said, you can still withdraw money in about 4-6 working days, which – if you ask me, is pretty decent.

Endowus also provides investment solutions for CPF, SRS and cash.

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