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When it comes to retirement, it pays to think long-term

By Thusitha de Silva

If you have just started working, it can be difficult to think about retirement. This is because your salary is already more or less allocated – many have student loans to repay, while others have to help out at home. Anything left over is for fun or buying something that you always wanted to buy but didn’t have the money. Savings are not high on the agenda at this stage.

However, with people living longer, retirement has to come into consideration as early as possible in a person’s working life. Retirement may seem a long way off now, but it comes faster than you can imagine. Herein lies a problem: Even if Singaporeans have set aside some money to invest, many of them do not look at their investments through long-term lenses. They tend to follow the herd, moving in and out of assets depending on how an asset price is doing. If prices are rising, they flock to an asset, and if prices are falling, they will exit the asset as swiftly as possible. This short-term investment trading mentality is not only a Singaporean trait – it is common across Asia.

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Long-term planning can give peace of mind

Investor education should always emphasise that having a long-term investment horizon is the key to building a substantial nest egg. This message is often not taken on board. It is a difficult proposition because it is human nature to react and respond to price movements. This is even more the case in the Internet age, where attention spans are shorter and the flavour of the week is reduced by the immediacy of social media to the flavour of the hour.

If an individual is disciplined enough to have a long-term investment horizon, he or she basically doesn’t have to worry about their investments. He or she will believe that short-term fluctuations in asset prices tend to smoothen out over the long run. Having said that, the initial investment decisions have to be sound. You need to have a high level of conviction about what you are going to buy. High conviction means sticking to your guns regardless of what an asset’s price is doing – unless you have made a bad call.

Take risks when younger

Generally, between the ages of 20 and 50, people tend to be in the accumulation phase of building their nest eggs. If an individual must speculate, it should only happen during this phase. He or she could allocate a small proportion of their funds to riskier assets. For example, as their nest egg grows, they can possibly allocate to growth stocks like biotechnology names, or fintech companies. But they have to be aware that, while higher returns come with higher risk, any losses can be steep, too.

After an individual passes age 50, he or she is typically in the preservation stage of building her nest egg. Any investments should be more conservative. With people living longer, it is possible that the official retirement age will be raised further, as many people may have shortfalls in their retirement funding. As the government is not likely to help out much with handouts, Singaporeans will somehow have to figure out if they have saved enough and thus adjust their lives accordingly in terms of when they want to retire and how they want to spend their retirement.

Thusitha de Silva is a financial journalist based in Johor Baru.

Related article:
In greying Singapore, it’s never too early to start saving for retirement