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Why Investing Is So Important For Everyone

It’s not really a secret that we Singaporeans want to come up tops in almost everything we do. We even have a self-deprecating and endearing term we use to describe this mentality we have – “kiasu”, which is literally translated in plain English as “being afraid to lose”. Just today, it was revealed that Singapore has topped yet another global ranking, this time taking pole position as the world’s most expensive city to live in.

As reported by the BBC, the other four cities occupying the top five positions in the list, compiled by the Economist Intelligence Unit (EIU), are Paris in France, Oslo in Norway, Zurich in Switzerland, and Sydney in Australia.

According to Toby Iles from the EIU, Singapore has grown fast on the list of the world’s most expensive cities. Five years ago, it was at the 15th spot; it was sixth last year; and today, it’s at number 1. So, simply put, the cost of living is increasing in Singapore and IIles cites a number of factors for the rapid ascent: Singapore’s very high cost of cars, energy, and water supply, among others.

Thing is, the EIU’s study is hardly an isolated case. Just two months, Singaporeans saw a hike in the fares for public bus and train services and in April last year, it was revealed that even the prices of everyday meals like fish ball noodles and chicken rice had gone up.

This is a troubling problem. According to data from the Department of Statistics Singapore, from June 2009 to June 2013, the nominal (i.e. unadjusted for inflation) median gross monthly income of employed residents in Singapore had grown by a compounded annualised rate of 6% from S$2,927 to S$3,705. While this likely outpaced inflation – which went at an average rate of 3.7% from 2009 to 2013 – it’s not hard to imagine how some households would have faced a much tougher time trying to keep up with the rise in the cost of living here.

This brings me to how important investing is for everyone. Investing, when done correctly, enables investors to protect their capital against the ravaging effects of inflation, and could even enhance the purchasing power of their capital. While there are other avenues for investing, the stock market could be a good place to start.

Over the past 25 years from 1988 to 2013, the Consumer Price Index (a measure of inflation in Singapore) has grown from 69.7 to 115.8, representing an average annual inflation rate of 2.05%. In contrast, the Straits Times Index (SGX: ^STI) here in Singapore, which represents the collective price movements of some of the largest publicly-listed companies in Singapore, has grown from 834 points at the start of 1988 to 3,167 at the end of 2013. That translates into a compounded annual growth rate of 5.3%, handily outpacing inflation.

In addition, individual shares could also provide growing streams of income through dividends. For instance, over their past 10 completed financial years, shares like Vicom (SGX: V01), Jardine Matheson Holdings (SGX: J36), and Jardine Cycle & Carriage (SGX: C07) have grown their dividends substantially by a compounded annualised rate of 13.6%, 16.2%, and 28.6%, respectively.

Dividends per share

Year

Vicom

Jardine Matheson

Jardine C&C

2002

US$0.30

2003

S$0.063

US$0.33

US$0.0872

2004

S$0.058

US$0.40

US$0.10

2005

S$0.085

US$0.45

US$0.18

2006

S$0.119

US$0.50

US$0.20

2007

S$0.155

US$0.65

US$0.43

2008

S$0.093

US$0.75

US$0.50

2009

S$0.118

US$0.90

US$0.58

2010

S$0.161

US$1.15

US$0.98

2011

S$0.176

US$1.25

US$1.23

2012

S$0.182

US$1.34

US$1.23

2013

S$0.225

*

US$1.08

*Jardine Matheson Holdings would be releasing its results for 2013 on 6 March 2014

Source: S&P Capital IQ

The growing dividends from such shares can help to offset the strain of a rising cost of living by providing a secondary source of income that gets bigger each year.

Of course, the stock market comes with risks but it’s something that can be mitigated. With more signs pointing to the rise in how expensive it can be to live in Singapore, it goes to show how important it is for everyone to start thinking hard about ways to invest to grow their wealth. While the stock market’s not a magical panacea for sure, it can be one of the best places you can depend on to grow your wealth.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.