SINGAPORE — For many millennials, the top priority is to grow their wealth, yet 42 per cent of them don’t know the best way to do so, according to OCBC’s Financial Wellness Survey 2020. So how exactly should they do to make the most of their money.
This is part of a series where Yahoo Finance Singapore will focus on different aspects of millennials and how they can manage their finances wisely. In this third part, we speak to several financial experts who share the different ways young adults can grow their wealth.
A common way to grow money is through investments. The general recommendation is for youths to invest in globally diversified, market-based and low-cost portfolios of equities and bonds. These include global indexed funds and evidence-based funds.
“Banks are not the best place for growing money as the return will never be sufficient to beat inflation over time,” said Chuin Ting Weber, CEO of MoneyOwl, a financial adviser and fund management company.
Weber also cautioned: “It is often assumed that a young person has a longer time horizon compared to an older person and can take more risks. But if your goal is shorter-term, like buying your first marital home, then your time horizon is actually shorter and your ability to take risks is lower.”
As such, Weber doesn't recommend youths to stake their important life goals on "exciting things" like gold, cryptocurrency, thematic investments and futurist tech stocks.
“At least part of the potential return is speculative, and at a minimum, there is just too much uncertainty. I recommend keeping these to within 5% of your financial portfolio. As for your core plan for your most important goals, keep it 'boring' – because that’s the reliable, tried-and-tested stuff,” said Weber.
This is also echoed by the founding partner of Singapore-based financial technology company Endowus, Gregory Van. “Youths should not be enamoured by the high returns from buying meme stocks or speculating on cryptocurrencies. The hope of attaining financial freedom through speculative investing is not a plan for financial success,” he said.
Instead, Van suggests that youths let their money grow steadily over the long term by investing in a diversified low-cost portfolio, while focusing on their career growth.
A financially savvy individual should be both making money and growing money, said Ezekiel Chew, founder and CEO of Asia Forex Mentor, an online trading mentoring service.
“You make money when you generate income in terms of wages and profits. But growing money is where you utilise the money you have made to acquire more,” said Chew.
That’s why Chew recommends those who want a higher return on investment to start trading in whatever way possible.
“Some scalpers trade the market in the minute timeframe, while others trade the hourly time frame where they get in and out within the same day. There are also swing traders who get into a trade, hold for days or even weeks,” said Chew, explaining the different types of traders.
However, he added a caveat: “Do your research well. Do not invest your money based on tips from other people, instead invest it because you know and are confident in a certain market.”
For those who prefer a safer option, Chew suggests a more passive approach of considering exchange traded funds (ETF). ETFs is a type of security that tracks an index, sector, commodity, or other asset which can be purchased or sold on a stock exchange the same as a regular stock.
Chew then recommends matching the ETFs against the Standard and Poor's 500, a stock market index of 500 large companies listed on stock exchanges in the US.
3. Starting a business
Alternatively, starting a business is a good way to grow your money. In today’s technologically advanced world, it is important for youths to learn to grow a business digitally. This involves learning skills such as copywriting, sales funnels, search engine optimisation, social media management and email marketing.
These businesses can start as small entrepreneurial projects that help solve existing problems in society. Examples include home-run food businesses, tuition services for kids, as well as financial literacy services for the elderly and migrant workers.
“It is essential to do ample research before committing to starting a business especially since a youth’s financial capital is not likely to be high at this stage,” said Srihari Sikhakollu, CEO of eRemit Singapore, an online money transfer service.
“The market is harsh. You’ll know very quickly whether what you bring to the table is something that is paramount for success. But don’t lose sight, especially when times get tough, because it will be worth it eventually,” said Sikhakollu.
Sikhakollu also cited constant networking as an important asset for business growth. Youths can talk to mentors and industry peers, which could lead to building relationships and creating valuable collaborations that will help grow their businesses.
But whether you choose to invest, trade or start a business, there are bound to be highs and lows. What’s most important is to treat every challenge as a learning experience, because even failures can pave the way for future successes, Sikhakollu said.
“It is important for youths not to make emotional decisions and always refer to the facts and data before making a judgment or decision. Don’t look down on starting small either – it helps build confidence more quickly,” he added.
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