If you want to invest for retirement, there are only two ways you can make money

  • Investing for capital gain
  • Investing for passive income

With all the fluffy advocation by the media nowadays, income investing seems the way to go. But in reality, that is not likely where you can start with. Why?

If you understand a bit about income investing, you know that you will be lucky enough if you can receive 4% to 5% consistent investment income. You may also start to realize that many Singaporeans invest into properties for rental income, but end up with less than 2% rental yield.

Let’s say you want to earn a simple $2,500 per month income from your investment portfolio, you will need at least $600,000 initial investment capital to start with ($2,500 * 12 months / 5%).

Do you have $600,000 cash?

If not, your first step to investing for retirement is not to pursue income, but to accumulate enough retirement capital. In this post, I will explain to you the foundations of building your retirement funds through investments.

Can’t I just save for retirement?

The first question you may ask is why you should even invest, can’t you just save?

Yes, you can. But you need a much larger base to start with. Let’s say you are in your 40s and you only have $50,000 cash because you have put all your savings into the house you are living in.

Nevertheless, to achieve $2,500 retirement income, you are willing to side aside $2,500 a month to a retirement savings account. With 1% savings interest, it will take you 16.7 years before you can obtain your first $600,000.

On the other hand, you can choose to invest your money. With a portfolio of 8% return, it will only take you 10 years to reach your retirement goals.

Which one would you prefer?

How can I invest without losing my pants?

Let’s be honest, you know you should invest, you are just afraid of losing money.

Our human brains are wired in perpetual survival mode and we suffer greater pain when we lose money than feeling happy when we make the same amount of money. This is something called “loss aversion” in behavioural finance. And that is the reason buy and hold strategy does not work for retirement.

Investing for retirement is a long haul process and involves large amount of our hard earned savings. So we tend to shut down when facing the choice of investment.

To most people, the word “investing” itself is enough to drain our energies. No wonder Singaporeans have the highest savings rate in the world. We feel safe when our money is in the bank.

Investing for retirement is not about not losing, it is about winning. – Ivan Guan

But do you know that while average people focus on saving, rich people always focus on earning?

It is not that saving is not important, but instead of clipping coupons, living frugally and miss all the opportunities to grow our wealth, we could channel our mental energy towards accumulating wealth in non-linear terms.

Investing for retirement has no fixed return

I have been in the investment advisory business for more than a decade, the most common question people ask me is always this,

How much is your investment return?

This, to a certain extent, is a valid question, but it is not a smart question. Why?

First of all, people who ask this question still have the mentality of putting their money in a savings account. In a savings account, you get a simple interest and your wealth grows linearly. But when it comes to investing, your wealth will be subject to a non-linear return, just like the graph below:

Line A: your money in an investment portfolio. Line B: your money is in a savings account]
Line A: return from an investment portfolio. Line B: return from a savings account

In fact, our own wealth is always on non-linear terms too.

How many of you have your salary or income increased the same percentage every year?

I used to have $500 monthly allowance when I was in university, then I earned a few thousands salary when I graduate, and my income has multiplied several times since my first pay.

In the same period, my personal savings has also gone through a roller coaster ride. I graduated with the hope that my bank balance will rocket as I save, but the expenses also started to pile up: the wedding expenses, the down payment for the first house, the cost to raise the kids, the school fees, the car expenses, and it goes on…

I never managed to build my savings in a straight line up, I don’t think most people did it either. But that is OK. Because the bank balance is just a measurement of the things we possess. Along the way, I’ve learned that the ironic thing about possession is that you don’t possess the possessions, the possessions possess you.

Investing for retirement is about making money, and more…

You may say, “Isn’t investing about making more money?”

That is true, but not correct.

Investing is about making money with a reasonable high probability and at a risk level which you can tolerate. – Ivan Guan

There are two aspects of investing often overlooked by people.

#1. Reasonable high probability of winning

The return of any investment is often in inverse relationship with the probabilities of winning. Winning Toto has a lower probability than 4D but you have a higher payout.

Imagine you buy one 4D ticket and one Toto ticket each day for the rest of your life, you are likely to strike a 4D win, but you may never win Toto first prize in your lifetime. That is simple mathematics.

It is the same when it comes to investing for retirement. We are often enticed by the home-run investment profit made by our friends, our colleagues, or “trading masters” and students of trading masters.

Those profits may be real but are they repeatable?

#2. Risk level which you can tolerate

If you have ever invested before, you must have been asked to fill up some sort of risk profile questionnaires. You were asked questions like:

  • What is your expected return?
  • Are you a risk taker or conservative investor.

Then you are “classified” to purchase either a high risk or low-risk products according to your risk preferences.

But most of the time, your “risk preference” isn’t useful at all.

When my wife gave birth to our first child, she had decided not to use epidural anaesthesia (the most popular method of pain relief during labour). After all, it may cause risks to the baby and the anaesthesia is quite expensive.

She reckoned that she could tolerate the pain and it was “no big deal”. But halfway through the labour, you know what happened…

The truth is, we often do not really know our tolerance level until it really happens. And this is very dangerous when it comes to investing for retirement.

In bad investment markets, an average investor can only hold the investment for at most 3 years.

Investing for retirement with a compass

So now you have learned that there are two tricky parts when it comes to investing for retirement.

  • Generate high probability return in the long-term
  • Manage investment risks so you can stay on course.

So how can you manage these?


Over the years I have developed a tool called Global Momentum Compass (It is also known as GMC by many of my subscribers). It is a simple yet effective guide for you to build the investment portfolio for your retirement.

You cannot tolerate investment risks, you can only manage these risks. – Ivan Guan

GMC has been my northern star in managing investment portfolio over the years.

I help my clients to implement GMC as a retirement portfolio on a fee basis, but if you want to have a sneak peek of it, you can download a simplified version for free.

Execution is more important than knowing the strategy

We don’t succeed in life by just knowing a method,

  • Is it that you don’t know simply doing more exercise can lose weight?
  • Is it that you don’t know writing down a goal is more effective than just having it in your mind?
  • Is it that you don’t know you have to save the first hundred dollars before making the first million?

Strategies are like food recipes, we can have the instructions right in front of us but we may not cook the same delicious dish.

Maybe you have invested before but the result was not up to your satisfaction, maybe you have not started investing because you are afraid of losing money, maybe you have always wanted to do something for your retirement but you have no time nor energy to kick start it.

If you need a professional to help manage the investment for you, you can schedule an investment discovery meeting with me using the online form below.

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About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

  • Hi Ivan,

    I am an EP holder. I want to invest 2k/month in SRS to save tax.
    Could you please let me know

    1) What is the maximum tax I can save on 24K/annual SRS investment ( assuming my annual salary is 140K ). I have two dependent – wife and 6 year old son.

    2) Where does SRS invests – bonds,mutual fund, ETF, equites etc?

    3) I am planning to invest in SRS for 3 years. I will withdraw whole amount after 5th year. Can I do that? What will be the penalty and tax amount?

    • Hi, Kapil

      I have a more detailed article about SRS via this link. To answer your question.

      1) It depends on your tax bracket and other tax planning
      2) You have a wide range of investment options, I can give you some recommendations if you need.
      3) For foreigners, you can withdraw without penalty after 10 years, but if you want to withdraw after 5 years, you will be subject to 5% penalty and full tax on the SRS savings.

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