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The Secret Of Being A Millionaire

The Motley FoolIt is official. Singapore is the easiest place in the world to becoming wealthy. Wealth in this instance is described as having a net worth of US$1.5 million. That’s around S$1.9 million, at the present rate of exchange.

According to Barclays Wealth, which is the private banking arm of Barclays, just over half of Singapore’s high net worth individuals accumulated their wealth in less than 10 years. By comparison, only a third of the people in the United Arab Emirates managed to do it in the same period. In the US, the proportion drops to just one in ten people who said they amassed their wealth in a decade.

So five times as many people in Singapore compared to people in Americans became wealthy in ten years.

How the rich got rich

If you are hoping to get rich by inheriting money, then you may want to think again. Only a third of wealthy people in Singapore have become rich as a result of inheriting money. That should not come as great a surprise given that our parents are living longer, which is terrific news. But it might also mean that they could need every cent they have salted away over the years for themselves.

So, what about property, which always seems to be popular in Asia?

Well, that doesn’t figure too highly either when it comes to accumulating wealth, which some may find surprising. Only four out of seven people cited profiting from property as a source of their wealth.

So, if the people of Singapore have not become rich by inheriting money, and if they haven’t joined the ranks of the wealthy through property speculation, then how did they manage to do it?

The answer is from personal investments.

Around three quarters of rich people in Singapore said personal investments were the principal sources of their overall wealth.

In fact, investing figured quite highly in most countries as a means of acquiring wealth. In China and Hong Kong, 99% and 82% of wealthy individuals respectively, said investing played a significant role in becoming rich.

We can all be richer

The thing to remember is that accumulating wealth can be an achievable goal rather than simply a pipe-dream. It boils down to how you choose to prioritise the money that you have at your disposal. In other words, do you want a dollop of jam today or a pot of jam tomorrow?

History tells us that investing in shares is one of the best ways to accumulate wealth over the long term. The reasons should be obvious to everyone. However, many people may still miss the crucial point about investing.

When we invest in shares we are rewarded for taking on risk. The rewards, which are over and above the returns we would get from leaving our money as cash, compensates us for taking on the relatively higher risk of buying shares. If we weren’t suitably rewarded, then why would any of us bother to invest?

The secret of accumulating wealth over the long term is, therefore, to harness the power of the stock market by continually accumulating good shares. Put another way, we don’t need to start off being fabulously rich to get even richer. All we need to do is to keep adding money to the market regardless of prevailing market conditions.

Investing just got better

Consider a company such as Keppel Corporation (SGX: BN4), which most of us in Singapore should be familiar with. The company’s history dates back to 1859, when the first dry dock was constructed at Keppel Harbour. It was incorporated in 1968 as part of the privatisation of Singapore’s ship-repair industry.

Over the last 10 years, every S$1,000 invested in Keppel Corporation in 2003 would have turned into S$7,735, which is a remarkable return.

But it gets better.

If you had invested S$1,000 every month for the last ten years in Keppel Corporation shares, your regular investments would have turned into S$456,000. In other words, you would have been a quarter of the way to becoming a high net worth individual.

But Keppel isn’t the only share that has delivered an outstanding return for shareholders. If you had invested S$1,000 every month in Sembcorp Marine (SGX: S51), your regular investments would have turned into S$536,000 after one decade.

A similar investment in Singapore Exchange  (SGX: S68) would have grown to S$586,000, and a monthly investment of S$1,000 in Jardine Matheson Holdings  (SGX: J36) would have ballooned to S$711,000.

So just to recap, investing S$1,000 every month in each of the four companies would have turn into S$2.3 million. That should have more than elevated you into the league of high net worth individuals.

Take a simple idea…..

The secret is compounding, which put simply is re-investing the dividends you receive into more shares that should in turn deliver more dividends that you can re-invest into more shares.

Albert Einstein once said: “Compound interest is the eighth wonder of the world. Those who understand it, earns it. Those who don’t, pay it.”

Compounding is a very simple idea. But sometime all it requires is to take a simple idea and apply it seriously. Those who do, could reap the benefits of investing in shares, while those do don’t could be left wondering why they have been left behind.

Warren Buffett once said: “If a business does well, the stock eventually follows.”

So, spend time looking for good business. That’s what we are passionate about here at Motley Fool Singapore. We look for robust business that we can rely on to deliver solid long-term rewards for shareholders. We are not concerned by fluctuations in the market. We just take a simple idea and apply it, seriously.

This article first appeared in Take Stock – Singapore.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.