Single-digit millionaires are in an odd place: on the one hand, you have access to financial products and opportunities the average Singaporean may lack. On the other, you’re not yet affluent enough to take on many of the bigger risks. This tends to require more personalised and dynamic financial planning. Here’s what you can consider:
1. Get help before opting-in as an accredited investor
Some financial products – generally those with higher risk categories, or which are more complex – are reserved for accredited investors. You must be an accredited investor before banks or other Financial Institutions (Fis) can sell you such products.
By MAS standards, an accredited investor is someone who:
- Has had an income of at least S$300,000 (or its equivalent in a foreign currency) over the past 12 months
- Has a net worth of at least S$2 million (or equivalent in a foreign currency). Note that the home you own (your residential address) cannot make up more than $1 million of this net worth.
- Net financial assets that exceed S$1 million (or equivalent in a foreign currency)
As of 2019, accredited investor status is on an “opt-in” basis. This means you won’t count as one even if you meet the above requirements; not until you deliberately register yourself as one. You can speak to a qualified wealth manager to help you with this process.
You can also qualify as an accredited investor with a joint account, if at least one joint account holder is already an accredited investor. In this scenario, the other account holders must also opt-in to be accredited investors. If any one of them opts out, the joint account will lose the accredited investor statis.
Being an accredited investor is not for everyone.
On the one hand, you can buy products that are higher-risk, and higher return. Accredited investors can buy into private equity, hedge funds, venture capital firms, and others. Some Peer-to-Peer lending platforms, where you can make high-interest loans to private entities, also require you to be accredited.
On the other hand, these options are high-risk, volatile, and have the potential for capital losses. They can also include sophisticated products like mezzanine loans, where the risk profiles and structures are not easily understood by the layperson.
If you are more risk-averse and will not use these products anyway, you may not want to register as an accredited investor. However, you may want a small portion of your portfolio to hold such products, in the interest of wealth accumulation. Speak to a financial professional, who can guide you through the decision.
2. Use your capital to seek diversified income streams
Some single-digit millionaires derive the entirety of their income from a single source, such as a business, property rental, or just their job. This is risky, as losing the single source of income can derail your retirement or other financial goals.
One advantage that single-digit millionaires have, which the average Singaporean may not, is the capital to create diversified income streams. One simple example is building a diversified portfolio, with significant dividend or coupon payouts.
A single-digit millionaire is better able to build a portfolio that pays out a few thousand a month, due to their larger capital; it’s an opportunity that shouldn’t be wasted.
Other examples are entrepreneurship, owning cash-generating assets like rental properties, or even providing high-interest loans to businesses.
3. Invest in self-upgrading
Some single-digit millionaires find themselves at a plateau. They’ve made their first few million, but lack the knowledge to move onto a higher rung. In these instances, self-upgrading may be the way forward.
Single-digit millionaires sometimes take on higher education later in life. Now that they have the time and capital (the two are often interrelated), some take on studies like finance, accounting, law, engineering, etc. to supplement their entrepreneurship or wealth management. As a bonus, these studies tend to be low-stress, as it’s purely for knowledge and less about passing the exams.
(I know some single-digit millionaires who are in finance or law courses mainly to network with others, or get advice from the top lecturers in the industry. Some barely even care if they pass!)
Self-upgrading can go beyond this.
It can also mean developing skills in painting, music, sculpting, etc., which are not only potential sources of added income, but also an opportunity to network. Single-digit millionaires may be to commit to such endeavours on a full-time basis, or to afford private lessons with the best in the field; this makes them more likely to excel at their pursuits.
Improving your health, or getting industry-leading therapists to help with issues like alcoholism or smoking, are also forms of self-upgrading.
4. Track your portfolio performance
There’s an old saying that “what gets measured, gets managed.” Single-digit millionaires tend to have bigger and more complex portfolios. This necessitates, and also justifies, demanding more time from you financial advisors or wealth managers.
You should seek at least quarterly updates on how your portfolio is performing, and which product are – or are not – meeting expectations. Portfolio rebalancing should be done at least every six months, and during big market shifts as the situation demands.
Keep in mind that, as your portfolio grows and the investments become more complex, it becomes increasingly untenable to try and track it all yourself. That’s why even billionaire stock-traders, who can outperform most finance experts, may still have people advising them.
Financial planning is an ongoing process, even for the average person. For single-digit millionaires (and when you become a wealthier multi-millionaire later), portfolio management needs will only intensify.
This is why it’s ideal to find a good financial representative or wealth manager from the beginning, and keep them on long term: when you “parachute” someone into managing a complex portfolio with equities, zero-coupon bonds, perpetual income bonds, bear ETFs, endowments with varying maturing dates, venture capital, etc., the risk of overlooking something is much higher.
5. Stop trading your time for money
The key difference between the financially struggling, and the financially well-off, is that the former trades time for money (e.g., physical labour for wages). The latter trades money for them (e.g., hiring an expert to deal with something, so you can focus on more urgent and high-value decisions).
This process is not natural, but learned. There are, for instance, successful start-up owners who still cannot delegate: they are so preoccupied with running the small details of every operation, thus forgoing the opportunity to close bigger deals or go cross-border.
It takes experience – or ideally a good mentor figure or advisor – to break the habit. Hiring people to provide services is harder than it seems: you’ll often feel it’s not to your standards, if they’re taking over a task that was once your core competency.
It does mean coming out of your comfort zone, such as managing a development team instead of staring at your screen and coding an app alone, even if that was the original way you made your million.
If you find you’re unable to get past your single-digit millionaire status, or worse – feel anxiety of losing it – do reach out to us. We can help with your questions, and provide greater clarity for your decisions.
