The chart clearly proves to us how much the principal will grow after the accumulation of different interest rates and time. Hence, the impact of compound interest at 1% plus is absolutely decisive and this is the reason for accumulating. However, the interest rate used in the above chart is only a hypothesis. After all, there are endless solutions in the market. It is also difficult for us to generalize at one interest rate.
How to treat this 1%?
Here we have to mention the inflation rate. The inflation rate is a currency phenomenon, which refers to the devaluation of currency caused by the currency circulation exceeding the amount of currency that is actually needed in circulation.
According to the data released by the Monetary Authority of Singapore this year, the inflation rate in 2019 was between 1.2%-1.7%. Annual deposit or investment interest rate minus inflation rate and the result is your actual interest rate. If your saving rate is lower than this percentage, it shows that your money has always been devalued, and vice versa.
Therefore, don't think that investing is minimal things. If you do not have much information about this, then it is time to find a financial adviser to help you solve the problem.
Why should we pursue this 1%?
When we working so hard, we also hope that our deposits or income will worth the time and energy that we used. We will endeavor to make money because of the following reasons:
1. Combating Inflation
A plate of chicken rice is sold at a price of $1.5, but now the price is generally $3.5. The cruel reality tells us that the meal has not changed its taste, weight, and appearance but the price has become more expensive. This is caused by currency, the rate of inflation and the value of money. Therefore, people often say that tomorrow's money is not valued as much as the current moment.
2. Establish Passive Income
People that played cash money know the ultimate goal of the game was to make the passive income greater than our consumption, to ensure life is safe and secure. Therefore, the constant pursuit of more 1% is to achieve these goals.
3. Create More Assets
Some part of the income comes from work, and others come from investment income. This is definitely the best model. We are pursuing an endless 1% through investments so that we can constantly double our assets.
The following chart is normally the rate of return in the market that familiar to us.
Bank Account / Fixed Deposits:
0%-3%
Inflation Rate
1%-2%
CPF Ordinary Account
2.5%
Saving / Retirement Insurance
3%-4%
CPF Special Account
4%
Other investments
<4%
Although 1% plays a decisive role, don't care too much about every 1% of life, and let yourself be overtaxed.
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