Wealth Accumulation

DISCLAIMER:
The following post contains information that is purely my thoughts and opinions. I do not represent any person, company or entity in terms of advice or equivalent. Please consult your financial consultant to discuss and plan your financial goals.

This post could very well be Part 2 to Insurance.

So, while building up on your Insurance Portfolio, another aspect that must be taken care of is Wealth Accumulation. We cannot always work for money. The trick is, make money work for you. The ultimate goal, is financial freedom. There are plenty of wealth accumulation tools -  one of which is trading in stocks (as shared in last post), if not, the following below.

First Off...

I would like to explain the Rule of 72. There is some link to it, as this could decide on how you would want to achieve your financial goals. Every savings instrument will give some form of interest. For you to double the amount in your savings (and not do anything to it), it will take 72 Years for every 1% compounded interest per annum.

If a savings / investing instrument gives you 5% compounded interest per year, it will take you 14.4 years to double your amounnt. One can do the math.

Where do we go from here?

Again, there are different types of investment / wealth accumulation tools. One will definitely need an account for liquid assets, and probably another for illiquid assets. Chances are the illiquid assets are the one that is bringing in more interest rates. Your typical bank account gives you 0.05% interest per year, upwards to 8.05% for the High-Interest savings account (which are rather gimicky, as you have to fulfil certain criterias to achieve it).

Fixed deposits gives you up to 2.45%, in which you need to have a certain amount to be locked up for a certain amount of time. There are Bonds in which you can invest with the government, up to 2.5% interest per annum.

Besides your Life-Insurance policies, there are Endowment plans which gives you up to 4% interest, if not the Invesment-Linked Endowment plans gives you up to 8% interest, depending on performance and time horizon.

So you will have to ascertain your risk profile (how much risk you are willing to take), and go from there. Most people have a safer risk appetite, in which they opt in for standard Endowment plans, and let the financial institutions do its thing. The more daring ones go for higher risk tools (the higher the rewards for sure, but also, the harder the fall).

What I used to do was, once my pay-cheque comes in, I would pay myself (save) $1000. Next, I pay my bills, then my insurance, then the rest, for day-to-day expenditure. I live, somewhat, a frugal life. But now, with extra assets in my investment portfolio, I can spend a little more. Still, I do have a goal in mind (within the short-term), and am still working towards it.

In my opinion, once we have our typical bank savings account settled, I feel we can always start with an Endowment plan of sorts, as you just need to deposit a certain amount of money, rather than one lump-sum (for Fixed Deposits). If you have extra cash to spare (and are willing to lose), start investing like I do. Your endowment plan is the many layers of sponge of cake, while your riskier investment returns works as the cream or cherry on top of said cake.

While working towards this, it is also good to have 6 months worth of your monthly salary in your backpocket, should anything horrible happen to you. This money should not be touched as it is only for rainy days usage.

Last Words...

I have shared whatever I know about wealth accumulation tools. Hopefully, it shed some light and given the reader some idea on what to do.

Like I mention: sit down with your financial advisor, and work out a plan to reach your financial goal. Please do your own research, and consider the annual interest rate, time-horizon, and the amount of risk needed to be taken. Be and stay committed to the plan, and I am damn sure you could reach your goals.

Again, the ultimate goal, is financial freedom, where you do not need to think twice on what you spend on. We will get there... eventually.

Warmest,
- Stephano