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2 Big Reasons Why You Should Be Investing In the Stock Market

Socking your money into your bank account regularly is great – that means you’re saving for the future. But, there are compelling reasons why savers should go one step further and start seriously considering the act of investing in the stock market. Here’re two of them.

1. Deposit rates are just too low

The current deposit rate if you open an account with a local bank is only about 0.05% per annum. This means that you earn 50 cents in a year for every S$1,000 you save in the bank.

It also means that your S$1,000 in savings in your bank account will be worth S$1,051.26 after 100 years. In contrast, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks the performance of the Straits Times Index (SGX: ^STI), has generated an annualised return of 8.44% per annum since its inception in 2002. With 8.44% a year, a S$1,000 investment would be worth S$2,248.51 in a decade and S$3.3 million in a century. That just looks way more attractive than the S$51.26 in profit you’d earn from a savings account.

2. Costs of the future

For those who are just starting a family and planning for the future, it’s worth pointing out that the costs of living are rising and future expenses like your child’s education might be a major drag on your finances.

Here’s a quick look at the tuition fees for the National University of Singapore: The basic annual tuition fee for a student who’s a Singaporean citizen with a MOE Tuition grant ranges from S$7,850 (if your child is interested in an Arts and Social Sciences degree) to S$24,200 (if your child wants to become a doctor or dentist).

That means we have to save between S$23,000 and $120,000 for each child’s university education depending on the length and type of degree. Imagine what the cost will be in the next 10 to 20 years even if tuition fees had simply grown at the rate of inflation? Here’s a ball park figure – the S$24,200 annual tuition fee for a Medical degree would cost almost S$44,000 in 20 years’ time assuming inflation runs at 3% per annum. And if we further assume that the Medical degree lasts for five years, that’s some S$220,000 you’d need to save in 20 years’ time for just tuition fees alone.

With such numbers, if you think investing is a game only for the rich, please think again; not investing is a luxury only the rich can afford.

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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 contributor Stanley Lim does not own any companies listed above.