23 Nov Get Smart: How Growth Stocks Boost Your Retirement Savings
People are living longer now.
Over the last two centuries, advances in medicine, healthcare and technology have led to an impressive jump in life expectancy.
Globally, we can now expect to live for an average of 72 years.It’s even more impressive in Singapore.
Back in 2010, the average life expectancy was slightly below 82 years but has since risen to 84 years last year.
While all this is good news for us, it does beg the question of how much more we will need to sock away to enjoy these additional golden years.
Building up a buffer
So, let’s break down how much we may need for our retirement.
First off, you need an important “emergency fund” that houses 12 to 24 months of your monthly expenses.
Next, you will need insurance plans that buffer you against critical illnesses or disabilities.
Finally, you need to calculate how many years you will be without any income assuming you retire at 67.
If you are optimistic and believe you can live till 85, that’s a total of 18 years without any income.
Assuming you need S$3,000 a month, that’s S$72,000 of emergency funds and S$648,000 in retirement savings (S$3,000 x 12 x 18).
All in, you’d probably need to sock away at least S$720,000 or more to ensure you can afford a comfortable life when you stop working.
The attractiveness of growth stocks
The number may look daunting at first glance.
But there is an effective method for you to build up your retirement savings, and that is to invest in growth stocks.
Such businesses are attractive as they allow your money to beat inflation and also provide an attractive long-term return for your capital.
Such stocks come in a variety of flavours, and some examples include well-known names such as Alphabet (NASDAQ: GOOGL), the owner of the Google search engine, iPhone manufacturer Apple (NASDAQ: AAPL), and technology giant Microsoft (NASDAQ: MSFT).
Local examples include financial technology company iFAST Corporation Limited (SGX: AIY) and also REITs such as Mapletree Industrial Trust (SGX: ME8U) and Parkway Life REIT (SGX: C2PU).
By owning such great businesses, you can grow your money at a faster clip and accelerate your retirement journey.
The US market versus Singapore
It’s no secret that the US has many more growth companies that have global operations.
In contrast, Singaporean companies are better known for paying consistent dividends and sport a higher dividend yield than their US counterparts.
So, when it comes to selecting growth companies, the US market qualifies as a more fertile hunting ground as you will be spoilt for choice.
Now, let’s look at the returns generated from investing in two different markets — the US, and Singapore.
Over the last decade, the S&P 500 index has returned 16.2% annually while the Straits Times Index (SGX: ^STI), or STI, has returned just 5.1%.
That’s not all.
The STI has also not recovered after hitting its all-time high back in 2007, just before the Global Financial Crisis broke out.
The S&P 500, on the other hand, is at more than triple its peak of 2007.
Finally, the recent pandemic has also highlighted the strengths of the major US companies such as Meta Platforms (NASDAQ: FB) and Amazon (NASDAQ: AMZN).
Because of technology and the internet, these stocks have also fared vastly better than Singapore blue-chips, many of which are in older economy sectors such as real estate and commodities.
Get Smart: The Best Time To Invest
Insurer Great Eastern (SGX: G07) has revealed in a recent survey that a top regret of these retirees was not planning early enough for retirement, such that they had to make adjustments to their lifestyle to account for the lower passive income they received.
So, don’t hesitate when it comes to your financial future.
As the saying goes, the best time to invest was yesterday, the second-best time is today.
After years of investing, we found that successful growth investing depends on 3 core mindset shifts. And by adopting these into your investing strategy, you’ll massively boost your chances of finding your next 10X stock. Our latest report shows you how to use them in your investing journey. Click here to download it for free.
Disclaimer: Royston Yang owns shares of Apple, Meta Platforms, Alphabet, iFAST Corporation Limited and Mapletree Industrial Trust.