Previously, i wrote about how much monthly income one needs to make in order to become a millionaire in their late 40’s or 50’s. The link to my previous post is attached below.

https://terrencenotes.com/2019/08/01/how-to-become-a-millionaire-in-singapore-2-0/

One of the major deficiency of my previous post is that i do not factor in investment return on savings. In reality, everyone can invest a portion of their money in stock market. Empirical evidences over the last 200 years have shown that stock, or equity, is the best performing asset class among other assets such as gold, real estate, bonds etc.

If you are disciplined enough and set aside $10,000 of your savings every year to invest in either mutual fund or ETF, you will be able to save over a million dollars in 30 years time; assuming both mutual fund and ETF give you a 10% and 6% return per annum respectively.

So, it is not too far fetched to imagine to become a millionaire if you prudently invest an equal amount of money over a long period of time.

If you look at Dow Jones Industrial Average Index (DJIA) and S&P 500 (SPX) performance in the last 40 years, both indices return 8.81% and 8.53% per annum respectively, since 1979. Had you invested $10,000 every year in ETF that tracks DJIA and SPX which gives you 8.5% return per annum since 1979, you would had $3.1 million today; from total principal investment of $400,000 over a 40-year period.

Of course, there had been many up and down in the past 40 years. For example, S&P 500 reached a “short-term” peak of 1,500 in July-2000, right before the burst of dotcom bubble. It took 7 years for S&P 500 to recover from its previous peak reached in July-2000 in 2007. Then Subprime Mortgage Crisis hit the global market in 2008 and 2009, it took another 6 years for S&P 500 to recover to 1,500 level in March-2013. During the period between 2000 and 2013, had you invested an equal amount of money into S&P 500 ETF, you would had lost significant amount of money in the 14 years period. If you panic about the huge paper loss during these 14 years period and sold out, you would miss the next 100% return from 1,500 to 3,000 between 2013 and 2019.

S&P 500 reached a bottom in March-2009 at the height of the Subprime Mortgage Crisis when Lehman Brothers filed for bankruptcy protection and U.S. Treasury Department immediately rolled out US$780bn bailout plan to prevent liquidity dries out in the world’s largest financial market. S&P 500 hit a trough of 683 on 6th March 2009. As of 28th August 2019, S&P 500 stood at 2,887.94, this translates to a Compounded Annual Return of 14.74% over 10.5 years period, or 323% total return.

Patience is very important in investing. If you have the emotional stability to buy stocks no matter what happens and be very disciplined in not selling regardless of how bad the market performs in the short-term, GOOD NEWS, you will be able to make good money in your life time.

From the above analysis, it is quite clear that if you are able to hold down to your job that can pays for your everyday expenses and carve out a portion of it for investing, you will be rich one day.