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The Price to Pay for Not Investing

In an age where inflation threatens to increase the costs of living faster than our wages rise, can we afford not to invest?

Let’s explore this question today from a slightly different angle today by tackling this question instead: What difference does it make to a person’s nest egg if she were to merely save as compared to her saving and investing?

Let’s first set up the basic parameters for our thought experiment: Our person here is a nice lady who saves $5,000 a year starting from the age of 25 to her retirement age of 62.

In an alternate universe, the same lady also saves the same $5,000 a year – but she’d then take all the savings each year and plonk it into a simple investing instrument like the SPDR STI ETF (SGX: ES3), an exchange-traded fund which mimics the fundamentals of Singapore’s market barometer, the Straits Times Index (SGX: ^STI).

Since the SPDR STI ETF’s inception in April 2002, it has generated an average annual return of 8.11%. So, let’s assume that our investor/saver can earn an 8% annual return on her investment.

Here’s what happens to the nest egg of our nice lady from 25 to 62 years of age:

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With the simple act of investing and staying invested, the nice lady has significantly increased her chances of a comfortable retirement. We can see the huge difference in the retirement wealth that can be amassed by a saver and an investor/saver ($190,000 versus $1.1 million in our example).

This simple exercise also points out something important: Great things can happen if we view investing as a form of a long-term savings plan (where our money stays invested) instead of something that involves speculative actions like jumping in and out of stocks.

When approached properly, the stock market can be a great tool for you to compound your wealth.

There're a lot more interesting things about saving and investing to talk about and if you'd like to do it in person, you can come meet David Kuo and the rest of the Fool Singapore team on August 15! 

Please join us at Invest FAIR Singapore on 15 August. (Suntec Centre, Booth B-16). Come chat with us at our booth, and see our MAS-licensed Director, David Kuo, give his official SGX investor presentation.

You won't want to miss this! Add Invest FAIR Singapore to your calendar today.

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