Nothing to post on my portfolio.
As its the time of the year again where graduates enter the workforce and worry about their future and savings. Here is a simple illustration for them (and everyone else of course) which espouses the importance of financial education.
Two individuals, Mr Brillant (Mr. B) and Mr Normal (Mr. N), have graduated and now work at Livic Services at age 25. Being the brilliant man Mr. B is, he is remunerated with a higher pay of $3,850 per month. While normal Mr. N enters Livic Services with a starting pay of $3,450 per month. As Mr N earns lower than Mr. B, Mr N is only able to save 30% of his pay, while Mr. B is capable of saving 40%. Both individuals get a 4% pay rise annually at Livic.
However, Mr. N has an ace and that is his accumulated financial knowledge which was rarely taught in school. As a result, majority of the cohort (including Mr. B ) does not have much knowledge in this domain. As a result, Mr. N is able to manage his savings better and obtain a return of 7% on his savings through investing in Index funds, cash-flow generative businesses and avoiding the pitfalls of investing in damaging financial products. Mr. B, on the other hand, puts his faith in a friend who has become a MA at Dam Bloody Smart Bank. His MA friend introduces Mr. B to a suite of investment products and investing in "stock flavors of the month". This nets Mr. B an annual return of 4.5% (much higher than CPF's weighted average returns). Isn't that great
From this simple illustration, lets tabulate the outcome. At age 45, due to his higher saving rate and pay, Mr. B is financially ahead as he has amassed $77,720, while Mr. N is close behind at $68,728. Things change however at 55, where Mr. N is now ahead at $176,157, while B is at $174,037. From then on Mr. N is forever ahead and this gap continues to widen despite Mr. B's higher pay and savings rate. At age 60, Mr N is ahead at $270,218 while Mr B, $248,941.
This illustration serves to highlight two points. When one is starting out, our portfolio is of a small value, therefore funding more for wealth accumulation through saving makes a bigger impact. However, this advantage narrows as one's portfolio balloons and when our portfolio is substantial, the knowledge in avoiding the pitfalls of mismanagement of one's money becomes more important.
