Earlier this week, Mr Budget was relooking into his long term financial goals again. While we had previously set a goal to have S$10,000 monthly passive income by 2033 (45 years old), we will need to relook at the figure again since we have shifted our strategy from dividend investing to growth investing.
Previously, assuming a 5% annual dividend, the required portfolio amount for us to reach S$10,000 monthly passive income was S$2,400,000 by 45 years old.
Since we are no longer focusing on dividend play, we asked ourselves, what would our goal be since we are repositioned into a growth portfolio.
What if we aim for a liquid portfolio of S$5,000,000 by 45? What would it take? What is the rate or return required?
With Mr Budget’s current S$400,000 of liquid net worth (cash, stocks, bonds, roboadvisor) as of December 2020, here’s the backward calculation:
According to the table, we will need to consistently hit a ROR of 21.5% annually so that we can hit the required S$5,000,000 by 2032, starting from a liquid net worth of S$400,000.
For some context, 21.5% annual return is a bit hard to achieve – S&P500 historically returns 10% over the past 100 years, and legendary Warren Buffett’s average annual return is at 17.1%. So 21.5% is a bit unrealistic.
But the good news is, this calculation is assuming that there are no capital injection. If we were to invest S$60,000 annually, we will now need a ROR of 15.5% every year to hit S$5,000,000 by 2032:
|Year||Age||ROR: 15.5%||+$60,000||Year end amount|
Of course, if the first few years my liquid asset can grow at a higher rate, then it will be faster for us to hit the S$5,000,000 mark earlier.
And if we do invest minimally S$60,000 a year and consistently hit more than 15.5%, I think it is very doable to hit S$5,000,000 by 45, excluding CPF.
So by end of this year, hopefully we will have at least $536,208.75 in liquid net worth so that we will be on track. Will we hit this? Only time will tell!
For Mrs Budget, if Mrs Budget were to follow the similar rate of return as Mr Budget, and invest at least S$20,000 annually, Mrs Budget will be able to hit S$2,000,000 in liquid net worth by 40 years old, and she can then retire earlier.
|Age||ROR: 15.5%||+$20,000||Year end amount:|
With an annual rate of return of 15.5%, Mrs Budget will hit S$2,000,000 by year 2030 when she is 40 years old, while Mr Budget will have to wait 2 more years to hit his S$5,000,000 target by year 2032.
Now that we know the math, it becomes very clear what we need to do:
- Get at least 15.5% rate of return annually.
- Invest at least S$60,000 and S$20,000 annually for Mr and Mrs Budget respectively.
- Earlier outperformance will greatly increase the end result.
I think S$5,000,000 (Mr Budget) can be quite a comfortable amount to retire with. We will also have our CPF to fall back to.
However, this is also not taking into consideration the amount that Mrs Budget and I will need to fork out for our kids, and that will be a big unknown for us now. And that may largely impact our financial projection.
S$5,000,000 seems to be a high target to aim, and we have to be really lucky again and again for us to get an annual return of 15.5%. The stock market needs to enjoy an extended 10 year bull run, and we have to be at the right side of the run.
The key is, since our goal is 10 years looking forward, similarly we should try as much as possible to visualize the world 10 years later, and the kind of disruption, technology, environment and new life order we will be living in.
Once we can visualize that, we should then deploy and allocate our resources accordingly to capture some of these future growth.
It is also always good to aim high and aim for the stars. Even if you don’t hit the stars, you will land at the moon.
Will review this at the end of the year. 🙂
Also Read: Our Financial Goals
2 thoughts on “What Does It Take To Hit S$5,000,000 By Age 45”
I’m equal parts impressed and intrigued that you have set your projected rate of return to almost match the historical returns of one of the most legendary investors alive today. Are you able to share your strategy to consistently hit that target over the next 13 years?
Thanks for dropping by and calling this out!
No there are no strategy per se but there are some guiding pointers:
– If you’ve been following what ARK’s research and their thesis of a 5 major disruption happening now, I think we are going to see huge amount of technological changes in the next 10 years if their thesis is right.
– Ark’s Cathie also said that they expect their fund to at grow by at least 20% pa over the next 5 – 10 years. if one believes in her and subscribe to their research thesis, one can actually just DCA into their funds and should be able to get the growth.
– In the early 2000s, Apple was the beneficiary of the last internet / smartphone disruption – and it grew about 20-30% ror per year.
– We are also quite bullish and riding on the ev, blockchain, bio/genetics revolution that seems unstoppable / ripe for prime time now.
So these are the reasons to be optimistic, because there are various technological advancement that is happening rapidly now.
Of course, another thing is that, we specifically set out a “far fetching” target for us which is seemingly out of reach but not impossible – sort of like giving ourselves motivations to aim high haha. even if we dont hit it we will probably be ok with the returns we achieve (10%pa – 15%pa).
I think this is just an exercise for us to see what does it take to reach S$5M, and what is the condition / ror required for us to do that. Some number crunching exercise for us at the start of the new year. I think we may be a bit naive to think that we will confirm hit that.