I’ve got two 5-cent coins sitting on my table.

One says 1995. And the other is a 2018 edition. I’ll tell you why I still kept them.

Once, I got scolded by a hawker stall auntie boss. It was lunchtime. The hawker centre was filled with office workers. Packs of tissues on empty tables. The stall I was queuing for was long. I was scrambling to use the loose change in my coin purse to pay for my kway teow soup. And I passed the auntie boss my 5-cent coins.

She scolded me for it. She said (in Chinese): "I've no use for these coins! Don't give them to me." I had no choice but to hold on to these coins in my coin purse.

Has this ever happened to you? These days, no businesses accept 5-cent coins anymore. I bet you also won't feel like accepting these coins. You know why? These coins are "worthless". As the stuff we buy gets more expensive, these coins will lose their purchasing power. Very soon, it will be 50-cent coins, even our dollar coins. You can't see it, but it's there.

The biggest concern all Singapore investor is this

The threat of inflation. A dollar won't buy as much as it used to before a rise in inflation. And that means, you run the risk of outliving your money. It's scary to think of it. Now, I’m not talking about that plate of chicken rice going up by a dollar. Or that kopi-o costs a little more each year.

The real threat comes from big-ticket items: house prices going up, car and COE prices are climbing. Hospital bills and even trying to eat healthily could cost much. Perhaps, you want to send your kids for an overseas university education.

The thing is, true wealth isn’t just having money. It’s being able to enjoy your retirement without constantly worrying about cost. Put it this way, true wealth is wanting the life you desire. And inflation is the pirate that robs the purchasing power of your money.

Take for example, if you've saved S$1 million for retirement. And you expect to spend S$50,000 on expenses and trips. Say you earn 2.4% investing your savings in a 10-year Singapore government bond.

What if inflation grows more than 3%, 5% or even 7% a year? In this scenario, your S$1 million you've saved could be worth much less than it was before. That you need to increase your S$50,000 to continue living the life you desire for retirement.

Warren Buffett said this best: “inflation swindles almost everybody”.

Why I invest for dividends - the best fight against inflation

With potential higher inflation, the market I’m seeing today resembles a lot like what happened during the 1970s. During that period, dividends actually accounted for 73% of all gains in the market during that decade.

Credit: Hartford Funds

In the early 1960s to 70s, Warren Buffett continued to devote a huge portion of Berkshire Hathaway's cash into stocks. This was despite the high inflation in the U.S. And his investment firm thrived even when inflation was 12% and housing loans went up as high as 20%.

In the 1940s, another time of high inflation, dividends accounted for 67% of stock market returns.

That’s why I want to start investing as early as possible. Investing is knowing how to accumulate wealth so you can beat inflation, which becomes even more critical than beating the market. To retire safely, you need to accumulate high-quality income generating assets that can grow your wealth in the run.

A well-built portfolio of dividend-paying businesses can grow its payouts over time, right alongside rising prices. That's the difference between a nest egg that shrinks in real value, and one that keeps pace with the world around it.

Do you agree?

By the way, I’ve also been posting on my socials on investing insights. Follow me on Instagram.

Willie Keng, CFA

Founder, dividendtitan.com

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