Building a portfolio worth SGD 1 Million in 15 years for retirement from scratch starting at the age of 50 in 10 different ways.
I have recently been contemplating over the idea on how anyone starting investments late in their forties from scratch would need to save every month and at what interest rate in Singapore, in Singapore funds or Global funds to accumulate a corpus of SGD 1 Million by the time they are 65. The idea discussed here being that the investment horizon is 15 years and starting at the age of 50. Would it be safer to invest every month into a diversified global portfolio or in dividend stocks or index funds or using Robo-advisers to reach this goal. This doesn't take into account CPF contributions which is Singapore’s comprehensive retirement and pension plan for Singaporeans and Permanent Residents. With the help of this article, I am putting some thoughts to paper and this article should not be taken as financial advice, only as an educational piece of content. The article below also excludes the effect of Expense Ratio, Management fees and inflation for simplicity.
Let’s consider the following scenarios that visualizes how investing money in different instruments and different interest rates can affect monthly contributions to achieve this goal. Excel Comes in very handy to do this calculation using the PMT formula, which is actually a loan payment calculator, but works well in our case.
The rate is the expected rate of returns, nper is the number of payments or contributions which in our case is the annual contribution, pv is the present value which is considered as 0, fv is the future value which is 1 Million and type represents when the payments are expected, at the start or at the end of the payment period, 0 being the default.
Scenario 1 — No Interest earned on savings over a period of 15 years i.e. considering an Interest Rate of 0%, the required yearly contribution would be SGD 66,666.67, making the monthly contribution,
SGD 5555.55/Month
Which is quite a high number, considering the median income in Singapore for the year 2019 was $4,563 — Source, this number is quite difficult to achieve.
Scenario 2 — Park your money in a savings account. On an average, savings account generate 0.05%-0.20% interest per year. Considering the rate of 0.05%, if compounded annually, the yearly addition to the account needs to be SGD 66,433.64 per year or
SGD 5336/month
which is just slightly lower than the number above with out any interest.
Scenario 3 — Let’s look at some of the high interest generating savings account such as DBS Multiplier, or UOB One or OCBC 365 which upon meeting a certain criteria pay out 1.5%-1.8% interest per annum, depending on how many transactions per criteria can be met such as salary credit, GIRO transactions or bill payments, investments or insurance purchase with them. This year the interests were lowered and let’s estimate most people could hit 2 categories with these banks, taking a conservative interest rate of 0.80%, the yearly contribution becomes SGD 63,012.64 per year or
SGD 5251/month
Scenario 4 — Next, let’s take a look at some of the fixed deposit accounts which on an average pay 1% p.a. depending on the time period for the investment, this amount comes up to SGD $62,123.78 per year or
SGD 5176/month
Scenario 5 — Next, let’s take a look at Singapore Savings bond which on an average have generated 1.76% average interest per annum over 10 years.
Using out PMT Calculation, this amount comes up to SGD 57,820.00 per year or
SGD 4818/month
Scenario 6 —For the next calculation, let’s consider parking the funds into Strait Times Index (STI ETF) which tracks the performance of Singapore’s largest 30 companies through SPDR® STI ETF or Nikko AM STI ETF. Considering average past returns at 3.5% with the dividends re-invested, the yearly contribution comes to SGD 51,825.07 per year, bringing the monthly contribution to
SGD 4318/month
Scenario 7— Analyzing some of the dividend paying stocks in Singapore with a yield of 4.5% to 5% per annum with the dividends being reinvested would need annual an annual contribution of SGD 46,342.29 and a monthly contribution of
SGD 3861/month
Scenario 8 — There are quite a few robo-advisers in Singapore which use algorithmic re-balancing for portfolio management such as DBS Digiportfolio, OCBC Roboinvest, Stashaway, Kristal.AI to name a few. They dont publicly declare the returns but taking a conservative estimate of 7% depending on risk appetite, the yearly contribution would come upto SGD 39,794.62, making the montly contribution
SGD 3316/month
Scenario 9— Now, lets look outside Singapore and at the US market. S&P 500 has provided historical growth over 10% since inception. Look at vanguard ETF Returns over the past 10 years at 13.82%, this would bring the yearly contribution to SGD 23,146.22, making the monthly contribution
SGD 1928/month
Scenario 10 — Let’s look at an entirely new class of funds called Actively managed ETF’s such as ARKK and ARKG, which invest in technologically innovative companies. Although they are a market outlier, these funds have provided anywhere between 45% to 100% over a period of past 5 years. Investing here could also be risky and only those with big risk appetites should consider these funds. The annual contribution at this rate would come down to SGD 1,650.81 per year or
SGD 137/month
The table below is a summary of investment instruments and the interest rates presented above.
Hope you have enjoyed reading the articles and gained some insights as much as I while writing about it.
If you have any thoughts or would like to offer any insights or correct my calculations, please feel free to drop a comment below.
