The Brand Team once asked me what I thought was one of the luckiest things that has happened to me—they were looking for a piece of interesting trivia for my adviser profile page. After some thought, I responded that I consider having been born in Singapore, in the 90s, to my parents, an amazing stroke of luck.
As August 2021 comes to a close, I feel this more strongly than ever. Maybe it is the fact that we have just celebrated Singapore’s 56th birthday (with, not one, but two parades). Or perhaps it is the fact that despite the continued threat of COVID-19, we have managed to keep things afloat somehow.
Of course, I think one of the reasons I am thankful is probably that over the 56 years that our nation has existed we have achieved the marvellous, enviable feat of creating a lot of financial wealth. Money is not a cure-all, but it helps a great deal in enabling us to live well. While we certainly have many things to continue to improve on and strive for, when looking at the level of wealth we have managed to reach as a nation, it is hard not to be impressed.
How Wealth is Built
The principles of wealth building do not differ much whether we are talking about people or nations. My colleague, Kyith from the Solutions Team, wrote an in-depth piece on the personal wealth equation which explains the foundational concepts.
To summarise, wealth is built by creating a surplus between what we can generate as income and what we pay out as expenses. The accumulation of this financial capital can be then deployed and supercharged through the process of investing—the result of which is dependent on a rate of return and the time the capital is allowed to remain invested.
Start Out with Energy
At the beginning of our wealth building journey, we all start out with our youth—human capital, in other words. Some may start out with more, some less, according to their physical and mental condition and their family’s financial circumstances, but the path to potentially creating significant wealth is the same.
The start of the process is about converting our human capital (time and labour) into financial capital. In monetary terms, the more efficiently we can do this, the better. We can increase that efficiency by commanding a higher wage by increasing our productivity through things such as education and developing highly demanded skills.
Singapore, as we are often reminded, had little in the way of natural resource endowments aside from our people and our strategic physical location. It seems that so far, we have been able to make good use of both. We also invest heavily in education, training and infrastructure which helps to increase our earning power.
Bank a Decent Surplus
To further increase our ability to earn, we can also accumulate financial capital that can then be deployed to earn a return that is not directly tied to our labour. To do this, we need to save by spending less than we make. Of course, saving is in direct conflict with our immediate spending needs, so a careful balance must be struck.
Overall, except for the recent COVID-19 period, Singapore has generally had relatively healthy budget surpluses for most years in our history. This has allowed us to expand the base that we can use to generate further investment returns as well as create a buffer for rainy days.
Invest Well Over the Long Term
To obtain valuable returns from our savings, we need to invest well too—consistently, and over time to allow our accumulated wealth to grow. In essence, a good way to achieve this is to use broadly diversified portfolios that match our need, ability, and willingness to take risk, so that we can stay invested and give our investments time to ride out any associated market volatility.
Over more than 40 years, Temasek and GIC have invested Singapore’s reserves in diversified portfolios that have achieved reasonable real rates of return (net of inflation). The government has, thus far, also made sure to spend less than the net return on these investments such that the returns are given the opportunity to snowball over time.
And the rest is the magic of long-term compounding.
It Can Work for Us Too
Singapore’s wealth journey so far seems to have been a rather effective execution of the strategy that Kyith describes in relation to the personal wealth equation. In a way, we should not be surprised because principles should be widely applicable.
Of course, beyond these broad strokes, there are other things to manage too.
For a country, that may mean many things including, but not limited to, the ongoing welfare of its citizens today, social cohesion, income and wealth disparity, an ageing population and even climate change.
For the individual wealth builder, it may mean the need to develop a holistic wealth plan that addresses our specific needs for liquidity, protection, investment growth and estate planning, while not compromising too heavily on our ability to live a full life with our loved ones today.
However, that my homeland is a positive example of the power of the personal wealth equation is something to celebrate.
Happy Birthday, Singapore!
This is an original article written by Bryan Chan, Client Adviser at Providend, Singapore’s First Fee-Only Wealth Advisory Firm.
For more related resources, check out:
1. Reflections on National Day Celebrations
2. The Relentless Pursuit of Better Investment Options (Part II)
3. Moods and the Market: How to Invest and Keep Investing
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