Unlocking Financial Success: From Debt to Wealth - A Millennial's Investment Journey
Simplifying personal finance strategies into manageable steps to kickstart your early investment journey.
Six years ago, I began my professional journey as an analyst at Goldman Sachs in Singapore. I was excited about being a grown-up, the corporate attire (yes, even the heels!) and proving myself. However, in this frenzy, I neglected to invest my savings to grow my wealth from the beginning. In hindsight, I wish I had taken the time to learn about how to invest and make smart decisions with my money.
Investing is essential for everyone as:
It helps you grow your savings and generate wealth
Smart investments help generate returns that beat the rate of inflation and maintain the value of your money
Consistent investing helps you achieve your goals including buying a house, starting your entrepreneurial journey, or generating wealth to comfortably retire
The challenge with investing however is that it appears daunting and unwieldy as you may not know where to start. A survey conducted by MagnifyMoney in November 2022 indicated that 45% of Americans regretted not investing more in the stock market over the past decade.
Below, I am sharing a few strategies for young readers or anyone who wants to start their investing journey but needs some guidance. I learned these during my career in finance and by taking tips from the best investors around me.
Start with saving: Starting salaries are generally low and it can be easy to splurge on items you are finally able to purchase. However, this is short-term thinking and will not grow your wealth. Saving allows you to create rainy-day funds for emergencies and investing a portion of your savings helps grow your money.
Follow the 50/30/20 rule to allocate your salary towards essentials (rent, utilities), desires (discretionary spending on clothes, travel, etc.), and savings. Do this math on your after-tax income to correctly determine how much you should save.
Build an emergency fund: Emergency funds come to the rescue when you unexpectedly lose your main source of income or face unexpected large expenses. Experts recommend setting aside 3-6 months' worth of living expenses in your emergency fund.
Personal anecdote: During my initial years in a full-time job, I encountered a serious knee injury that needed surgery. Being far from family in Singapore, my emergency fund quickly covered the medical costs.
Prioritise becoming debt-free: Pay off your student loans and credit card debt early to avoid piling on interest payments. Loan expenses trim your savings and wealth-generation efforts. Additionally, existing debt is likely to raise your debt-to-income ratio, a metric tracked by banks to offer you additional loans in the future.
Personal anecdote: I financed my master’s degree in the US with significant student loans. Once I began my first full-time job, my focus shifted to saving and clearing my debt within 2 years. Furthermore, during those initial years, I chose to put paying off my debt before aggressive investing, aiming to attain a debt-free status as swiftly as I could.
Consider allocating 50-70% of your savings towards investment: Asset management firms advise clients to invest 10-15% of their salaries towards investment to comfortably retire. Suppose your annual salary post taxes is USD 35,000. Saving 20% would total USD 7,000 per year. Of this, you should ideally invest 50-70% or USD 3,500 – USD 4,900 to grow your wealth.
Invest in simple funds that cover major stock markets and geographies: I am sure you are aware of Exchange Traded Funds (ETFs) that allow you to invest in a collection of companies. Each ETF has a geography and/or sector of coverage. For example, the Vanguard S&P 500 ETF tracks the companies listed on the S&P 500 index, considered the safest stock exchange globally. The Global X Autonomous & Electric Vehicles ETF follows automakers, semiconductor companies, and EV suppliers.
There are over 8,000 ETFs for you to choose from. These are safer investments compared to individual stocks because you can diversify your allocation toward many companies, geographies, and sectors. You can invest in bonds (considered safer than stocks but with lower price appreciation potential), commodities (oil, coffee, tea, metals, etc.), currencies (US Dollar, Euro, Japanese Yen, etc.), or real estate (through real estate investment trusts (REITs).
There are several considerations around choosing your ETF including:
Diversify your investments across stocks, bonds and currencies to avoid disproportionate exposure
Minimize the fee charged by the fund
Ensure it is a sizeable fund with strong liquidity to allow for easy selling during market volatility
Leverage your industry knowledge: Peter Lynch—one of the most successful investors who used to manage the Magellan Fund at Fidelity Investments—advises in his books that start investing in sectors where you have knowledge. Your day job allows you to imbibe more knowledge on a sector than the layperson.
For example, if you work in the beauty industry find publicly listed companies whose products you love using. If you are a barista in a café or server in a restaurant, find coffee and food chains you admire and check if they are publicly listed.
Enhance your knowledge about the economy: News articles and books are a rich source of knowledge on the economy. Use these sources to determine which economies have the potential to grow, and sectors that are struggling currently but have the potential to improve and serve as good investments.
For example, at the start of the Russia-Ukraine war, countries globally began investing in their defence capabilities including military, naval, and aerospace machinery. I saw that as an opportunity to invest in ETFs covering the defence sector. Another theme I am interested in is ageing populations in advanced economies. This trend should support companies catering to the elderly including the healthcare sector.
Utilize the information around you to find your next investment!
Take advantage of employer benefits: I see young analysts ignore this perk because they are too busy working and proving themselves. Slow down and learn about the employer-matched contributions to retirement offered by your firm. Trust me, work will always be there waiting for you!
If your employer offers a retirement plan with a match, contribute enough to get the full match. Employer matches are essentially free money that can greatly boost your investment savings.
Personal anecdote: My first employer offered various retirement plans to employees. I did not read through the choices and chose a sub-optimal option for my finances. Learn from my mistakes and take the time to enhance your knowledge when it comes to your money.
Explore high-interest savings accounts: Given the rise of interest rates post-COVID, several banks have increased the interest rate on savings accounts. This is a safe investment option to allocate a portion of your investment pot and diversify your investments.
Do a cursory Google search on bank accounts by interest rate in your country and choose a safe option. Do speak to your parents, uncles, aunts, and other experienced investors for their advice.
Finance resources I recommend: I highly recommend building a reading habit early on. It will be the biggest investment you make in yourself! As a resident of London, I spend substantial time on public transport and use that as my reading time.
My go-to news websites:
Financial Times
Bloomberg
CNBC
Morningstar
Yahoo Finance
Seeking Alpha
Investing.com
Book recommendations:
One up on Wall Street – Peter Lynch
The Little Book of Common-Sense Investing - John C. Bogle
The Simple Path to Wealth - JL Collins
A Random Walk Down Wall Street - Burton G. Malkiel
Use these strategies early on to manage your finances, build a savings buffer and grow your wealth to fulfil the goals that you want to achieve. Investing may appear daunting but a step-by-step approach should break down the process and make it less daunting.
Please do not hesitate to reach out with any questions or comments.