‍The original version of this article first appeared in The Business Times.  

Imagine your financial life as a great journey across a vast continent. In your early years, you begin as a solo hiker, relying on your own physical strength, grit and stamina—your human capital. Your skills, ambition, and labour are the force that propels you forward, allowing you to slowly ascend the mountains of your career and navigate its dark valleys. 

At times, you may feel like a real-life Bear Grylls, surviving on your wits and tackling whatever the wilderness throws at you. You can only keep moving forward to cover vast distances, and your progress is always tied directly to the steps you personally take and the skills you sharpen along the way. Stop walking, and your journey stops too. 

Here’s the thing: hiking isn’t the only way to cross this continent. With every paycheck, you have the chance to use some of your energy not just to walk, but to lay down tracks for a future railroad. This is the gradual work of building your financial capital. For years, this railroad may not seem to progress or even feel as tangible and impactful as covering new ground with each step you take on foot.

Then, one day, you lay the final piece, and the track can now run a locomotive. This is the crucial intersection of your wealth journey. Suddenly, the railroad you have built—your portfolio of investments—allows you to travel further and faster than you could ever walk, a train powered by its own compounding engine. Your role then shifts from that of the hiker, who relies on their own sweat and stamina, to that of the passenger, who is carried forward effortlessly. Understanding this transition is crucial to building lasting wealth and achieving genuine financial freedom. Even for those who love their work and want to ‘hike’ their entire lives, they reach a point where work is a choice, not a necessity. 

Assumptions

• Professional career begins at age 23, target retirement at age 65
• Starting salary at S$42,000, growing at 3% a year 
• Save 15% of salary up to age 40, save 20% of salary from 41 years and above
• Investment return at 8% p.a.
• Discount rate for human capital present value at 3% p.a.

Challenging climb for fresh graduates

Today’s job market for a newly minted graduate can feel like an arduous uphill climb, where the paths are not always clearly defined. 

To be a strong hiker, you need to equip yourself with the best gear and training. This is why your most important initial investment is in yourself. Your human capital is one of the most valuable assets you can ever own; it’s the sum of your education, knowledge, skills and experience, and fuels the ‘distance’ you can go, or what you can build in the future. Consider the human capital as the total value of your future lifetime earnings that is realised over time - it is at its absolute peak the day you graduate. 

As you start laying these tracks, every dollar you save is a resource to lay another piece of track for your financial railroad. At first, it might seem difficult, or that you don’t have ‘enough’ to start. You can always start with a small piece - because it’s more important to start the construction process and be disciplined about it, rather than trying to wait to lay one large section at once. Time is the invisible fuel for the compounding engine that will eventually power your railroad. 

Assumptions

• Contribution:
  
  • Starting investing at age 20: 6k per year (Total contribution: $225k)
  • Start investing at age 30: 10k per year (Total contribution: $350k)
  • Start investing at age 40: 20k per year (Total contribution: $500k)
  • Stat investing at age 50: 40k per year (Total contribution: $600k) 
• Contribution stops at age 65
• Assuming a steady return of 7% p.a

Should you fear the markets and risk?

Many young investors are fearful of market downturns, or sequence of return risk, where a bear market early on can hinder their ability to grow wealth significantly. But the truth is – as a young person, your human capital is your ultimate safety net. Your investment portfolio is a tiny fraction of your lifetime earnings potential; you can and should take on more calculated risk. 

The sequence of return risk in the markets is unfortunately completely out of our control, but what we can control is how much we save and spend - or the amount of energy you dedicate to laying new tracks.  A market downturn on a small, early portfolio is insignificant compared to the power of your future earnings. A young investor’s ability to keep “hiking” through the hills will overwhelm that early market risk experience over time.

Over time, you will reach a point where the railroad you have painstakingly built is now ready. This is the great handoff: your financial capital, which has compounded steadily over the years as you invest your earnings, finally surpasses your human capital, which naturally declines as you age and approach retirement. This is the intersection where the train—your investment portfolio—can now travel further and faster than you could ever walk. 

Building lasting wealth requires you to be both the strongest hiker possible to generate the resources, while also being the most disciplined builder to construct your railroad for the future. Don’t be daunted by a challenging start or steep climb - focus relentlessly on honing your skills to maximise your hiking power, while simultaneously starting to lay your financial tracks, even if it’s just one small piece at a time. The sooner you start building, the sooner you can get on that train to carry you through.