2024 is the return of the bull. The S&P 500 is up about 30% this year and even our local STI Index is up 25% if we include dividends. A very big difference compared to CPF returns of 4% and SSB returns of 3%.
However, if your portfolio is small, it is unlikely your total return will be anywhere near this numbers.
Here are some illustrations if we assume the cash/bond portion returns 3% and the equity portion returns 30%.
$500k Portfolio
If one sets aside $200k as emergency funds or to cover 3-4 years of expenses, the portfolio becomes a 60/40 one and the overall return is 19%.
$1 million Portfolio
If one sets aside $300k as emergency funds or to cover 3-4 years of expenses, the portfolio becomes a 70/30 one and the overall return is 22%.
$2 million Portfolio
If one sets aside $400k as emergency funds or to cover 3-4 years of expenses, the portfolio becomes a 80/20 one and the overall return is 24.5%.
$5 million Portfolio
If one sets aside $500k as emergency funds or to cover 3-4 years of expenses, the portfolio becomes a 90/10 one and the overall return is 27%.
Conclusion
Looking at the allocation examples above, no wonder the wealthier gets wealthier?
Long-term savings need to achieve good long-term returns. If one is >70% allocated in cash/bonds, the portfolio return barely outpaced inflation.
Returns are actually a zero-sum game. Think about it, if your return is lower than the “average” return of everyone in the world, your purchasing power declines relatively. That is probably the price to pay in exchange for the tempting siren song of certainty.
