You’re Not Ready for Retirement
Unrealistic expectations and sobering reality
CHATTING WITH KEVIN HARDY is a bit like receiving a dire prognosis from a doctor with impeccable bedside manners. The news is upsetting but easily digestible, and you feel like there is hope for the future. The head of Singapore operations for the world’s largest money manager BlackRock shares alarming facts about the investment habits, or lack thereof, in the average Singaporean.
What’s the most common financial behaviour Singaporeans have that needs to be rectified?
Singaporeans are a cautious and risk-averse lot. They like the flexibility of cash; the average man holds about 48 per cent of his assets in cash, which is actually far too much exposure. Now, according to BlackRock’s latest Global Investor Pulse survey, Singaporeans have a target annual investment return of 8.4 per cent. Unless you’re the sort of person to swing for the fences (which I don’t recommend), you’ll never be able to achieve returns of 8.4 per cent if you have half of your assets in cash.
What investments would you recommend then?
Are you asking me to make financial recommendations? (Laughs) If you have limited financial knowledge, you should first seek advice, whether it’s with someone you trust who is financially savvy or with the friendly person at the bank. You can seek advice online as well. In fact 52 per cent of men search for financial information digitally, whether it’s from bank websites or Google.
When asked what would encourage people to move away from holding too much cash, the top three reasons men gave were guaranteed returns, knowing that they won’t lose their initial investment and monthly dividends. At BlackRock, we stress that having a diversified slate of products and incomebearing investments with dividend streams is a good way to start. You can see your efforts bearing fruit.
Let’s talk about retirement, which is the ultimate goal of most people when they start investing. What advice would you give?
The best advice I can give is to start early and let the power of compounding take its course. Whenever retirement is mentioned, many young people think that it’s something that they can worry about when they’re older. But when you do get older, there is the mortgage to pay and your children’s school fees to worry about.
It’s like sports. You need to get the muscle memory of investing in early so that you get used to it. The millennials we surveyed put aside 12.5 per cent of their income towards investing, which while a bit on the low side is actually a good start. Once you start acquiring wealth, then you should bring that number up to 20 per cent.
The magic number is 20 per cent for investments?
Well it varies depending on your disposable income. But the percentage set aside for investments should be separate from the amount you put inside your savings account. It’s more important that you ingrain the muscle memory I was talking about earlier within you. And while I did mention that you should start as young as possible, that doesn’t mean that anyone above 35 is too old to start investing and preparing for retirement.