At The Smart Investor, we believe that everyone can become a millionaire regardless of their financial background. 

Imagine making confident, well-informed decisions about every dollar you earn—whether you’re saving, spending, repaying debts, or fueling the growth of your wealth. 

We believe in turning dreams into reality, and our mission is to guide you toward financial prosperity.

Are you ready to embark on an aspirational journey towards becoming a millionaire? 

Let The Smart Investor journey with you on this path to financial success. 

Together, we will achieve greatness, one smart investment decision at a time. The path to attain a millionaire status awaits—let’s start walking it together.

Step 1: Give a boost to the miracle of compounding

Albert Einstein called this deceptively simple formula the “greatest mathematical discovery of all time”.  We call it a road to salary independence.

What are we talking about?  We are talking about the miracle of compound returns.

Compounding is a phenomenon where your investment generates returns, and those returns, in turn, generate further returns. Over time, this compounding effect can significantly accelerate your wealth growth.

But what if you can give a bigger boost to this already accelerated path?

By reinvesting your dividends, an investor is able to amplify the magic of compounding and accelerate their returns over time. 

Let’s illustrate the power of compounding with a hypothetical example:

Suppose you invested S$10,000 in a dividend-paying company, buying 10,000 shares at S$1 each.

This company pays out an annual dividend of S$0.05 per share, so your 10,000 shares will entitled you to a dividend of S$500.

In Scenario A, you choose to withdraw the cash dividends while in Scenario B, you reinvest the cash dividends to buy more shares.

Let’s assume that the company’s share price increases by 4% per year and that the dividend stays constant for both years.

Scenario A (No Dividend Reinvestment):

Year 1: Investment Value = S$10,000 + (4% * S$10,000) = S$10,400 + S$500 received in dividends

Year 2: Investment Value = S$10,400 + (4% * S$10,400) = S$10,816 + another S$500 received in dividends

By the end of Year 2, your investment will be worth S$10,816 as the share price has appreciated by 4% in each year.

You will also end up with S$1,000 (S$500 x 2) worth of cash dividends.

Hence, total wealth will be equal to S$10,816 plus S$1,000 = S$11,816.

Scenario B (With Dividend Reinvestment):

Year 1: Investment Value = S$10,000 + (4% * S$10,000) = S$10,400 + S$500 (of dividends)

The S$500 of dividends will be used to purchase an additional 480 shares of the company at S$1.04 per share (remember that the share price has now appreciated by 4% from S$1!).

Hence, you will end up with 10,480 shares of the company at S$1.04 per share, for a total market value of S$10,899.20, at the beginning of Year 2.

Year 2: Investment Value = S$10,899.20 + (4% * S$10,899.20) = S$11,335.17 + S$524* received in dividends.

*S$524 = 10,480 shares x S$0.05 of dividends per share 

Let’s tally up your total wealth by the end of Year 2 under this scenario.

You will end up with S$11,859.17, slightly more than the S$11,816 in Scenario A.

The difference may not look like much, but this is because we only illustrated this example by reinvesting the dividend for one year.

If this process is rinsed and repeated over a decade, you will end up with not just a larger investment value as you end up owning more shares.

You will also enjoy a bigger flow of dividends as the number of shares increases.

As a bonus, the company may also increase its dividend per share, giving you more bang for your buck as you reinvest the dividends you received.

You can read more about reinvesting dividends here.

Step 2: Secure Your Financial Foundation 

Life is full of uncertainties, and unexpected expenses can arise at any time. Before growing your wealth, you first need to to build a solid financial foundation.  

First, you need to ensure that you have a sufficient cash cushion for emergencies. Having an emergency fund provides essential financial security and peace of mind.

Secondly, you need to manage your debt wisely. 

Differentiate between good debt and bad debt. 

Good debt includes a mortgage loan as it helps you to purchase an appreciating asset (i.e. a property). 

Credit card debt, on the the hand, is considered “bad” debt as it carries an interest rate in excess of 25% per annum, thus can quickly spiral out of control and snowball into a huge liability.

By focusing on securing your financial foundation, you can confidently navigate the challenges and opportunities that lie ahead on your journey to financial success.

Step 3: Avoid the Biggest Mistake Investors Make

We’re about to share with you the secret to avoiding a US$10 billion investment mistake. 

Warren Buffet is widely regarded as the world’s greatest investor. But even he openly admitted to a US$10 billion investment blunder in the 1980s. 

His reluctance to buy more shares of US supermarket giant Wal-Mart (NYSE: WMT) due to a small uptick in share price cost him a huge amount of future profits.  

While our natural inclinations serve us well in many aspects of life, they can be a liability when it comes to investing. 

Emotional reactions arising from both greed and fear can lead to costly errors. 

In other words, your brain is to blame for all these innocuous but expensive money mistakes. 

By mastering mindful investing, you can sidestep costly blunders and enhance your chances of long-term investment success. 

Want to read more about avoidable investment mistakes? Just click here to read more about what David Kuo has to say.

Step 4: Follow These Strategies For Investing Success

True investing success requires more than just time and temperament. We also need to get out of the “wet market” mentality.

Instead of fixating on the day-to-day movements in share prices, we should instead look to buy shares in solid businesses. When the business does well, the share price will follow. Measure investing success in the potential for long-term gains, not short-term fluctuations. 

It is also important not to try and time the market. Resist the urge to act impulsively; make decisions thoughtfully. We buy shares with the intention of holding them for the long haul. This also means that we need to learn to tune out the noise and to avoid getting swayed by sensational market news or tips from unverified sources.

Lastly, you need to remember to spread out your risk. 

In order to enjoy quality sleep, you need a solid asset-allocation plan — construct an investment portfolio with stocks that are not correlated to one another. 

You also need to diversify by ensuring that your investments are in multiple industries and spread out over regions. You can read more about diversifying your portfolio here.

Step 5: Learn when to sell

The question of when to sell is a common concern. While our glib answer is “never,” there are a few reasons why we may consider selling shares. 

These include better opportunities for your cash. If there are more promising investment options, that’s when an investor may sell a less attractive share, even at a loss, and substitute it with the more promising one.

Another reason is business changes. Significant changes in the company’s management, industry landscape (a pandemic perhaps?), or fundamentals may prompt re-evaluation. 

We sell if the original reasons for investing are no longer valid.

Mistakes happen. If your rationale for buying a share was flawed, you should sell based on a re-assessment of the risks.

Remember, as long-term investors, you need to focus on the bigger picture and should resist selling out of fear. Regularly reviewing your portfolio and keeping a written record of your investment choices help to guide you on when to sell.

Get Smart: Becoming a Singapore Stock Market Millionaire

Becoming a Singapore stock market millionaire is attainable with a systematic approach and a disciplined mindset. 

And that’s our goal here at The Smart Investor: to support Singaporean investors in their journey to become stock market millionaires through our informative content. 

We believe that with the right knowledge and guidance, anyone can achieve their financial goals in the Singapore stock market.

By following these five simple steps, you can harness the power of compounding and make well-informed investment decisions. 

Our commitment is to provide you with valuable insights and practical advice that will empower you to confidently navigate the complexities of the stock market.

The best gift a responsible parent can give their child is a secure, comfortable financial future. And we found that dividend investing is one of the easiest and effortless methods to do it. Our latest FREE report reveals how you can do it, plus the 3 SGX stocks you can buy today to start future-proofing your child’s financial future. Click HERE to grab a copy of the guide.

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Disclosure: Joanna Sng does not own shares in any of the companies mentioned.