Jonathan Kwok caused quite a bit of a stir in the personal finance world half a year back. Basically, he wrote an article illustrating how an average 30 year old could amass $100,000 before turning 30. Apparently, most “average” young adults were not convinced. But if he had written it 8 years earlier, I am pretty sure I would be one of those youths who would enthusiastically aspire to that goal.
Why am I so sure? And it’s not because Mrs 15HWW and I have more or less reached the target before age 28. Instead, my personal finance journey started with a $100,000 challenge, one which I read about almost 8 years ago. It was a challenge set by Christopher Ng Wai Chung in his book “Growing Your Tree of Prosperity.” I am actually quite surprised that there’s few reviews of his book around since I really appreciate his writing and have read the book countless times since. So here’s my summary and take on this book:
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Background
The book was written during 2004-2005. This was a period after the SARs crisis when globalisation was also rearing its ugly head. The country was suffering and with our neighbours getting their act together, Singapore could no longer compete for many manufacturing jobs. (Just look at what happened to Chartered SemiConductor.) The possibility of jobs being outsourced to India or China was also very real then.
Amidst all the doom and gloom, Christopher advocated Singaporeans to save up $100,000 to better prepare for the new world. Assuming a 6% yield, this would allow one to have an average passive income of $500 a month, offering a basic protection against unemployment.
Philosophy
Starting the challenge would also be easier if one adopts a new philosophy towards money. The 5Cs aren’t really applicable these days (country clubs? nah. credit cards? everybody has them) but it was all the rage a decade back. But this doesn’t mean status consciousness is dead. In fact, I feel it has worsened. It’s no longer enough to carry an LV bag. Apparently, it’s getting common. Now, it’s all about carrying a Prada or a Chanel to be able to “impress” friends.
Instead of consuming these Veblon goods, Christopher felt that we should readjust our values and lifestyle. Besides working hard as an employee and adopting resilience in our lives, I also learnt alot from the book about understanding the symbols of marketing To increase one’s immunity to marketing, one needs to understand that advertisements exist primarily to take advantage of our fear of being lonely and bored. Ahh…those Carlsberg/Heineken advertisements immediately come to mind.
And then there’s the importance of delayed gratification. Many readers have wondered where the first stash of cash came from. They are simply savings from my tuition income since I chose not to buy new watches/phones/cars/blablabla during those university years.
$100,000 Challenge Explained
Enough with the background, theory and philosophy. How does one accumulate $100,000 then? For a start, it’s all about limiting expenses. For those who draw salaries above the median income, Christopher advised them to spend within the median expenses of a household. A good strategy was to reduce large and luxurious expenses like massage chairs and cars. He also suggested practical methods like cutting down on restaurant visits, not purchasing latest models of electronic devices and downgrading to cheaper but equally gratifying entertainment.
With the savings aspect taken care of, it’s time to start laying the bricks one by one to build the economic castle. The 1st defence is supposedly a jar of petty cash lying around in the house to deal with “emergencies” like paying the newspaperman. I was also introduced to the concept of a bond ladder for the next layers of defence to achieve both higher returns and liquidity for cash reserves.
Investing is necessary to earn higher returns to speed up the challenge and also to generate a yield close to 6%. Instead of dollar cost averaging into a unit trust as illustrated in the book, I took the same concept and channelled my savings into an STI ETF by participating in the Philip Capital ShareBuilder Plan 3 years ago. And if one had followed some of the stock picks like Comfort Delgro, SPH and ST Engg in the book, the results really aren’t too bad 8 years down the road. My guess is close to a 10% annual return.
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If you’re interested in reading the book, I think Kino@Ngee Ann City still carries the title. Otherwise, there’s plenty of copies at the libraries waiting to be borrowed, as usual. 🙂
Amazingly, Christopher has just embarked on early retirement recently and you can read more about his latest thoughts and experiences here.
don’t listen to that guy. although he made it but those are seriously flawed numbers look at when the period is sanguine. he uses 8% as a yield rate and that is taking a lot of risk.
on a long run basis your likely yield on your portfolio should range near 5%. If you want to discuss retirement, there should be some safety in the figures that you look at and not at 8% where you buy all reits and wait to see them all systematically get cut in the worse case scenario.
perhaps also think about how much you need for retirement or financial independance. the rule of thumb is that if you need $1000 per month its around 300k (the withdrawal rate is 2%) if you need 4k its around 1.2 mil.
the recent retirement research done on a world context (NOT the US) shows that a safe withdrawal rate in the low interest low grwoth environment is clser to 1.8% not 4% and it makes a lot of difference.
Hi Drizzt,
6% is really ambitious, not to mention 8%. Indeed, even though our portfolio is yielding $6,000 in 2014, it’s taking us closer to $200,000 to achieve that. I would be happy if I can hit 4% in the long run. The yield is planned to be the theoretical withdrawal rate when we semi-retire/retire.
I am also increasingly concerned that the low interest, low growth environment might not be as short-term as many had predicted to be. Resource depletion, weariness with capitalism and inequality could help explain this. At the very least, I don’t expect returns for the past century to be repeated this century.
As for the book, I agree that some of his numbers could be too aggressive. But I guess the main ideas and principles are useful for an average Singaporean who’s starting out? It was a good early influence for me many years ago. =)
i think we wont know about the interest rate situation. that and inflation is very politically driven, and to plan with that assumption is dangerous basically. which is why many financial independance and retirement calculation fails cause the rates are rather standard.
im also concern that what if emerging mkts meanders for 10 years the way japan do. a problematic situations where the passive folks do not have a good solution to and the active folks may not be competent to deal with it. somehow i need to do a read on a world stock market etf.
Thanks for the support ! Anyway I can find you on FB ? We should meet up for satay one day and let’s get Driz’zt along for the ride.
Hi Christopher,
No problem. I am honoured that the author of a book that I appreciate is thanking me for doing a book review. =)
Oh, so you’re chummy with Drizzt? That’s interesting. And maybe I shall start a proper facebook account to complement the blog.
can come out no to satay!
I did it at 26 years old. MANY of my army mates did it between 28 ~ 30 years old.
DW did it too, before 30 years old.
Seriously, I don’t know what Johnathan is doing or thinking. So many common folks around me achieved it comfortably.
The few key criteria of course are
1) Family. Parents don’t need extra $$
2) Discipline in expenditures
And that’s all that is needed. It is not special because so many are able to do it with that 2 criteria, and there are actually other individuals who managed to achieve much much much more than I could at my age.
It is what happened after the first $100k that is hard. Not before.
Hi momoeagle,
There’s quite a few of us around here who have done it way before 30 but my hunch is we are very much the anomaly?
As you have mentioned, the problem is most do not have “discipline” in expenditures. Many of my friends are happy to save around 20%-30% of their income every month and will also inadvertently spend a bulk of their savings away at the end of the year on some handbags or overseas trips.
It took me a few weeks to accumulate $1,000, a few more months to accumulate $10,000 and a few years to accumulate $100,000. Likely I would need a few decades to get to the next milestone, if I ever reach there. =p