Misconceived Ideas about Investing

Came across a brilliant article by Vincent Chua and it’s definitely my duty to share with all my readers.

“A lot of people have been talking about financial literacy, which in my opinion, is about spend less than you earn, save the remaining and invest. One thing I do notice though is people aren’t “literate” learn sufficiently more about investing. Most know that investing is essential, but when it comes to actual execution, they either “follow the crowd” or they just “invest safely” with a saving plan or insurance policies. As such, I’ve coined the term “investing literacy”, which in essence, deals more with investing knowledge and fundamentals.

Please note that I’ve nothing against saving plans or insurance policies. In fact, I think they are good to help one invest in a disciplined manner. However, when it comes to investing, our primary goal is not so much of making a profit, which people often misunderstood. The primary aim of investing should be to beat inflation. With that in mind, what exactly is the inflation in Singapore? Let’s take a look at what the government has been telling us.

According to Department of Statistics of Singapore, the Consumer Price Index (CPI) from 2012 to 2013 is about 2%. CPI in other words means core inflation.

Credit from http://www.singstat.gov.sg/news/press_releases/cpidec2013.pdf

How about inflation for the past couple of years? Is it around 2% too? Well…

Source from http://www.tradingeconomics.com/singapore/inflation-cpi

The inflation has fluctuated from a staggering high of 6% in 2008 to negative inflation (also known as deflation) around 2009 to 2010 and up again to around 2% recently.

However, did you know that according to the CPF board, the way inflation was calculated is slightly different…

Source from http://mycpf.cpf.gov.sg/CPF/my-Cpf/reach-55/Reach55-2.htm

Those marked in red represents the percentage jump year on year for MS (adjusted for inflation). With 2008 to 2009 jumping 10.4%.

A little background about CPF Minimum Sum. It is the amount that is needed in your retirement account BEFORE you can even take out any amount of money when we retire. Unless our income is increasing at the rate of 6% (based on recent years), my personal take is our CPF will not be able to support our retirement.

Directly quoted from the CPF website,

How much is the Minimum Sum?

Setting aside the Minimum Sum (MS) when you reach 55 ensures that you have some regular income from age 65 to live on in your retirement.

The MS was set at $80,000 in 2003 and will be raised gradually until it reaches $120,000 (in 2003 dollars) in 2015. These amounts will be adjusted yearly for inflation.

If you are unable to set aside your full MS in cash, your property, bought with your CPF savings, will be automatically pledged for up to half of your MS.

Now, decide again for yourself if you want to start investing or you would rather “wait and see”. I just hope that you don’t see until you “si” (death in hokkien).

Those who started investing in their 40s wish they started in their 30s. Those who started in 30s wish they started in their 20s. The best time to invest is not in the future. The best time to invest is actually now. Invest in yourself, your finances and of course, your friends and family.

The article is a direct extraction from http://www.vincent-chua.com/2014/02/03/misconceived-ideas-about-investing/

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1 Comment

  1. Actually CPF way of calculating inflation is correct. The CPI on your Table 1 is not real figures. Transport they only take in the cost of public transport. If add in cars with COE.. the numbers won’t add up. Rem last time don’t have COE so at one point it’s $0 to $80k.. Lol

    Btw, what’s the inflation they put on housing? Let’s say a 250k 5rm 11yrs goes up to 500k. 100% gain in 11yrs so the percentage of inflation should be aro 9% or more.

    Reply

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