The pursuit of financial independence has been associated with a life of extreme prudence that has led to an undesirable quality of life where even creature comforts are considered excessive indulgence. There seems to be a step-by-step handbook that prescribes the right path to financial freedom - but with great sacrifice. It does not have to be that way.

During this session, FIRE-Path Lion, a Singapore-based finance blogger and Sheng Shi Chiam, Personal Finance Lead of Endowus, will talk about the trade-offs between key personal financial decisions and your plan for financial freedom and independence. They will share their thoughts on how best to make your money work for you, instead of you working for your money.

Points that will be covered include:

  • How far would a big purchase (ie. a car, a housing upgrade) set you back in retirement?
  • How should we approach salary increments and its impact?
  • How should we manage lifestyle inflation?
  • How can we invest efficiently?

00:00 Introduction by Sheng Shi and FIRE-Path Lion
05:00 Financial Independence, Retire Early (FIRE) in Singapore
09:56 Planning your FIRE journey
12:10 Examples of charting your FIRE goals
34:40 The Wealth Equation and Pareto Principle perspectives to financial freedom
35:40 Thinking about expenses and lifestyle choices
54:07 Investing with certainty towards financial freedom: The power of compounding and time in the market
1:09:48 Why not to time the market
1:12:20 Is it better to dollar-cost average or invest a lump sum?
1:22:53 Income maximisation
1:32:22 Conclusion

Excerpts from this session

How safe and sustainable is the 4% withdrawal rule? (22:45)

FPL: The 4% rule assumes a 30-year retirement, and is considered safe as 95% of the cases till now using the 4% rule were successful. Of course, if you don’t think a 95% success rate isn’t good enough, you’ll want to reduce the rate from 4% to 3.5%; I’m personally targeting 3.3%. The longer your retirement is, the lower your percentage should be, to make sure it doesn’t run out.

Why investing more money into our investments matter (54:12)

Sheng Shi: There were questions around how we should get a 8% return in the markets, for many viewers of Endowus Live (or readers of Endowus Insights) you would have started investing.

It is rare to find individuals like FPL and I that invest all our investable savings into the financial markets. For other individuals, they may be holding on to some cash, or significant amount of % cash to time the market. If you fully invested, you only need 7.2% annualised return to double your money in 10 years. If you were to hold some cash, there will be an impact of cash drag and you need to get more returns on your investment to compensate for the lack of returns from cash.

It is very difficult and extremely stressful trying to go in and out of the markets when you try to hold on to more cash. In contrast it is simpler to stay invested in the markets so that you have a higher chance of success.

Is it better to dollar-cost average or invest a lump sum? (1:12:20)

Sheng Shi: Avoid having to make these decisions in the first place. For most of us, we have stable incomes and expenses, so we can invest consistently without having to make such a huge decision at any point in time.

FPL: I think the best way to look at it is that lump-sum investing is always mathematically better. The worst thing you could do is to accumulate money long-term before investing it as a lump sum, because then you’re delaying your investment over time. Yes, there are huge fluctuations, but roughly 60% of the time, the market goes up, so it’s more likely for you to get positive market returns. By waiting to put money in, you’re statistically more likely to lose money by buying later and at a higher price.

Psychologically, DCA might be better as you feel more comfortable putting your money in. However, don’t do it for longer than 4-5 months. If you wait for too long and spread it out too much, you’re hurting yourself more than gaining. Do whatever makes you put your money and stay in the market.