When we start working and investing, most of us share the same dream: financial freedom.
But first we have to achieve many smaller milestones, like hitting our first S$100,000, which can feel painfully slow in the beginning.
Once built though, compounding kicks in and starts working like a horse for us.
This article explores how we can tackle the “first 100k sprint” before blowing out the candles on our 30th birthday.
Why the First S$100k Matters So Much
The first milestone is usually the hardest to cross.
Unlike mature investment portfolios, our portfolio relies heavily on our savings and active contributions.
However, once our portfolio hits six figures, everything changes.
The portfolio’s growth begins to accelerate, doing the heavy lifting so we don’t have to.
Step 1: Focus on Increasing Your Savings Rate
But before our portfolio and the market grind for us, we need to provide the basics.
This means focusing on our savings rate, the percentage of our take-home pay we put aside.
Aiming for a savings rate of around 40% is a good target when we still have fewer commitments and don’t need our investments to fund daily expenses.
As we move up the career ladder and our paychecks grow, we should look to increase our contributions too.
Establishing healthy financial habits now sets the tone for the rest of our lives, making this wealth-building journey second nature to us.
To ensure that we’re on track, we can also monitor our annual investment contribution – the total amount of fresh cash invested over a 12-month period.
This number should grow continuously year on year, proving that our investing capacity is scaling with our career.
Step 2: Start Investing as Early as Possible
Leaving our cash in the bank earning next to no interest allows inflation to eat away at our purchasing power.
Many of us try to wait for a market crash to buy in, but that’s a losing game.
While we sit on the sidelines waiting for the perfect moment, the market often climbs higher, leaving us behind.
There’s also no need to wait until we have a massive lump sum to start.
Using dollar-cost averaging (DCA), where we consistently invest manageable amounts, say S$150 monthly, is exactly what gets us across the finish line.
At 25, we have a massive wealth-generating potential because compounding works best over long periods.
Step 3: Build a Core Long-Term Portfolio
There is no need for a complicated spreadsheet with many stocks just to achieve our goal.
Building a portfolio is actually very simple.
Putting our money into Exchange-Traded Funds (ETFs) not only helps automatically pick the best companies to invest in, but also gives instant diversification with a single transaction.
Including some blue chips, like DBS Group (SGX: D05) and ST Engineering (SGX: S63) can provide great exposure to our local banking sector and global engineering industry.
These giants act as the defensive shield for our wealth.
Adding Real Estate Investment Trusts (REITs) can help add another layer of passive income.
High-quality REITs allow us to collect regular rental income without having to worry about managing properties.
It is also important to have an asset allocation plan to keep our risk in check.
For instance, 60% of the portfolio for ETFs, 20% for high-quality blue-chip stocks, 10% for high-potential growth stocks, and the remaining 10% is kept entirely in cash.
This allocation should be reviewed quarterly to ensure we don’t drift off course.
Step 4: Let Dividends and Compounding Work Together
Once our blue chips and REITs start dropping dividends into our brokerage accounts, there is something else we need to do: reinvest those payouts.
Think of these payouts as little minions.
Rather than letting them retire early, we need to put them back to work so they can recruit more minions.
This automated cycle is exactly what we need to accelerate our portfolio growth.
Initially, our passive income may seem like it’s barely anything.
But over time our portfolio will produce payouts that can pay for more than just a cup of bubble tea.
Step 5: Increase Your Income Alongside Your Portfolio
Because our capital base is still small, relying solely on our investment returns to achieve 100k can feel like an uphill battle.
Therefore, whenever we get a pay raise or bonus, we should always allocate a fixed percentage to pump straight into the market.
Injecting an extra few hundred dollars a month can easily shave years off our wealth-building timeline.
Ultimately, the best wealth-building game plan is to combine growing income with disciplined investing.
Tracking our portfolio using metrics like portfolio growth rate and total net worth progression can help us see how our portfolio is growing.
Common Mistakes Young Investors Make
While we build our portfolios, we also need to protect them.
Some common mistakes that can easily derail our progress include:
1. Chasing Fast Money
Meme coins or overnight jackpot tips are incredibly tempting, but they usually end up wiping out our hard-earned capital and bringing us back to square one.
2. Being Too Conservative
Failing to make full use of compounding by holding excessive cash allows inflation to erode our wealth over time.
3. Comparing Progress with Others
Wealth-building timelines differ for everyone, so there is no need to feel disheartened when comparing ourselves with others.
4. Overtrading
Constant buying and selling hurts our returns because we end up bleeding cash through transaction fees.
What Happens After the First S$100k?
Our portfolios will soon generate investment gains that exceed our actual contributions.
By then, our focus shifts from aggressive accumulation towards optimising income generation.
Hitting S$100,000 isn’t just about boasting rights or the number on our screens.
It builds the confidence and long-term investing mindset we need to weather any market cycle.
Get Smart: Consistency Beats Intensity
Starting out requires all the boring stuff – consistent saving, disciplined investing, and giving compounding the time to do its thing.
The earlier we build this financial foundation, the stronger our long-term wealth creation becomes.
Looking to start investing? Our beginner’s guide will show you how to make the best buying decision and make fewer mistakes. Click here to download for free now.
Follow us on Facebook, Instagram and Telegram for the latest investing news and analyses!
Disclosure: Si-Fan T. owns shares in DBS.
