24-11-2011, 10:50 AM
piggo Wrote:So what's the motivation behind investing when savings rate beats investment income anytime? Shouldn't most people be working their bums off I'm free lance work after their day job for supplementary income? Until it comes to a point where % returns beats your max possible savings, I'm starting to see less reason I'm doing very detailed research into companies. Time is better spent generating more secured income!
In the beginning, absolute dollar savings trump investment returns. But later on, investment returns dominate, as capital compounds while salary tends to move in step jumps but gets eroded by lifestyle inflation (kopi becomes Starbucks, Honda becomes BMW, HDB becomes condo).
So why bother investing when the sum is low? The most important reason is practice. Without sufficient practice it is hard to get good at anything, including investing. Learning to invest when you are 50 and have $300k on hand is not as effective as when you are 25 and have $5k on hand. By the time the 25-year old reaches 50 he will have a 25-year headstart on the 50-year old, and quite likely he will not have $300k on hand but significantly more.
Of course, this only applies if you are a salaried employee. As an entrepreneur your business can compound faster than any passive investment can, and it is usually best to concentrate your efforts on your business and leave the investing to others, whether a trusted fund manager or a private banker. Buying real estate, for example, is a popular way for entrepreneurs to diversify. Others invest into other private businesses.