How to Build Wealth: Lessons Learnt November 23, 2018
PhillipCapital’s Youth Wealth Challenge 2018 competition has truly been an immersive and enriching experience for me. And I’m certain the principles I’ve learnt will serve me well on my personal wealth building journey. As a young adult about to embark on my career after graduation, I understand that the key to effective wealth planning is to start early, and this Challenge presented itself as an excellent opportunity to acquire some basic fundamental knowledge.
The first takeaway that I have from the Youth Wealth Challenge is that in order to accumulate wealth, I had to first ensure that my wealth is well-protected. From the Challenge, this “protection” came in the form of a life insurance and hospitalisation plan, which provided the assurance that any unforeseen future medical expenses from an illness or surgical procedure do not substantially derail me from my financial goals.
The second takeaway from the Challenge is that it is crucial to conduct a self-assessment on my risk appetite and investment horizon prior to investing. These are vital questions to ask and establish early on as it enables me to determine the type of asset class to invest into, as well as the holding period. I am a strong believer of long-term investing, in comparison to short-term trading with respect to growing one’s investment journey. As Nobel Prize-winning economist Paul Samuelson once said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” Long-term investing is dull yet effective, and the key here is to think in years and decades, not minutes. That is not to say one should not trade at all. Rather, one should do so only after setting aside sufficient capital meant to accumulate wealth.
The third takeaway from the Challenge is that it is imperative to fully understand the product I was investing in, and the reason behind this investment. Unit Trusts, the main investment product of this Challenge, is a form of collective investment where investors pool their money and give a fund manager the control to invest according to the fund’s objectives. The fund’s objectives, along with its strategy, fees and historical performance, among other things, make up the fund prospectus. It is a document to scrutinize before making an investment decision. The fund factsheet also provides information such as the current geographical and sector breakdown of its constituents.
In addition, knowledge of the general investment climate, market sentiments, current stage of the business cycle and macroeconomic indicators can also provide valuable insights with regard to the reallocation and rebalancing of one’s investment portfolio. With the plethora of information, the next step is to filter between the news that matter and noise, factoring in only the former to gauge potential impact on my exposure before deciding on an appropriate course of action, if any. By adopting such a proactive and inquisitive approach in managing my investments, I find myself constantly questioning how certain market developments may potentially affect my portfolio’s long-term prospects, ensuring that I remain in control.
To sum up, I believe that one should start wealth planning as early as possible and while it takes a lot of patience and consistency to build up a solid investment portfolio, I will always remember to give good investments time to grow.
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About the author
Student, Nanyang Technological University
Winner of the Phillip Youth Wealth Challenge 2018
The writer of this article is winner of the Phillip Youth Wealth Challenge 2018, a contest held by PhillipCapital where youths could simulate wealth accumulation strategies. The views shared here reflect the winner’s perspective and do not necessarily represent the opinions of PhillipCapital and its members.