This is the final blog post which should be read together with the two I wrote this weekend to encourage young people to save and to invest in the stock market.
The aim of "Retiring a millionaire is not a dream!" is to shake all negativity from the mindsets of the young who think that it is impossible for them to have S$1 million in cash (without counting the money in their CPF or selling their HDB flats) when they retire at age 65 in the distant future.
With the help of numbers provided by The Business Times, the companion blog post "What is S$1 million dollars at retirement? Peanuts?" aims to demonstrate how $1 million is enough for retirement expenses, given certain assumptions.
In this final blog post which would complete the trilogy of blogs, I am going to tell you that there is no need to constantly invest to achieve a 5% annual return on your investments. Then, why did I bother to say that in the first instance?
Simply because it was the easiest way to illustrate how being disciplined savers who invest our savings, we could make reality out of a dream.
You know what is the best way to make money from the stock market?
It is to buy at the depths of a bear market when even the best blue chips are bombed out. During the GFC, I bought many more units of First REIT at 42c and LMIR at 18.5c. During the deep correction at the end of 2011, I bought more AIMS AMP Capital Industrial REIT at 95c. There are many such examples.
However, without any money put aside, there is no way we would be able to take advantage of opportunities to buy on the cheap!
Indeed, we might not even have to wait for a bear market to buy bombed out stocks as mispricing by Mr. Market could happen anytime and my large purchase of units of Saizen REIT at under 13c per unit middle of last year is a good example.
So, once we have savings put aside for investment, we should hedge by investing some of it but we should not invest all of it because we must always have a war chest ready to take advantage of any mispricings by Mr. Market.
We want to buy low and sell high. This means to sell stocks which are overvalued and to buy stocks which are undervalued. The former usually takes place in times of great optimism while the latter usually happens in times of great pessimism. Doing this will make us quite a bit of money from the market. Add to this our monthly savings and any dividends received, we would do quite well.
Making financial projections with average rates of return is all fine and good in theory but, in practice, making money from the stock market requires a little more diligence on our part but it is definitely not rocket science.
With this, we end this weekend's trilogy of blog posts which hopefully have demonstrated to the 25 year old reader whose email started all of this that his scepticism could be put to rest. The ball is now in his court.
1. Retiring a millionaire is not a dream.
2. What is S$1 million at retirement? Peanuts?