How the stock market can result in financial freedom in retirement

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The CSX hosted the ‘Securities Investment Opportunity in Cambodia’ seminar last July. Photo supplied

Financial freedom is one goal that everyone should aim to achieve – and while there are different ways of attaining financial independence, carefully preparing a financial plan is a key stepping stone to success.

What is ‘financial freedom’?

“Financial freedom” refers to the situation where people have enough resources – including money and assets – to be able to sustain the standard of living they desire.

It can be divided into financial freedom in the present and for the future – referring to retirement.

This is becoming an important issue in Cambodia as many people fail to plan for their retirement.

What should be done to achieve financial freedom in retirement?

Define financial goals

You should start by clearly defining your financial goals. You need to decide for example at what age you want to retire at, what kind of life you want to lead in retirement and how much money you should have to achieve this.

Doing so will enable you to estimate how much time you have left and to start planning accordingly – and the more specific your financial goals, the higher the likelihood of you achieving them.

Planning

To achieve your goals, you should prepare a budget plan – starting with income and expenses management.

Firstly, it is wise to cut unnecessary expenses to ensure that expenditure will always be lower than income so there are savings left to fulfil your objectives.

However, expenses reduction alone is not enough, you may also try maximising your income by taking part-time jobs, running a side business or by investing savings in financial instruments.

Investment

The key in receiving financial freedom is to make use of investments to increase your savings as much as possible.

This follows the notion of using money to make money.

The current trends of investment in Cambodia include joint businesses, real estate investments, long-term bank deposits and investments in financial instruments, such as stocks.

With each investment providing differing rates of return and bringing with them different risks, they can fulfil the varied investment purposes of investors.

Why are stocks a good option for investment to achieve financial freedom in retirement?

Passive income

Passive income is that which requires little to no effort to earn and maintain.

With investing in stocks not requiring managing the company you invest in, having transparent and capable companies earn money for you is among the smartest ways of generating passive income.

However, it is crucial to carefully choose companies to invest in as share values can go down as well as up.

Stock investment provides two types of income – that from dividend distribution and that from capital gains.

Normally, the dividend you receive reflects the profits of the company and the number of shares you hold, with you receiving the capital gain when the stock price increases.

Easy to start

It is simple to embark on investing in stocks – at the Cambodia Securities Exchange (CSX), you can buy a minimum of one share, while the cheapest stock price is below 2,000 riel.

You can invest even without the need for pouring in large amounts of capital as with other investments such as real estate.

Investment in stocks is easy, thanks to the simplicity of opening a trading account, with no requirement for any kind of monetary deposit.

Making securities transactions can be done through the Mobile Trading System – which has been specifically designed for smartphones and allows you to easily place buy or sell orders and check stock prices anywhere and at any time.

Steady income

Not only can investing in stocks bring in extra income, it can also provide a steady source of revenue.

Simply put, as long as the company keeps creating revenue and making profits, by owning of part of the business, you will continue to receive pay-out dividends.

Strong growth possible

Investing in listed companies provides the possibility of receiving strong growth in the long term due to the fact that only trustworthy enterprises with high potential are eligible to be listed on the market.

All firms must pass an eligibility review for listing on the bourse and meet every standard, including accounting, corporate governance, capital and profit requirements.

With businesses able to earn profits indefinitely, investing in the right companies with high long-term potential and strong growth rates, you could earn considerable amounts of capital gains in the future.

For example, the share price of Facebook notably increased from $38 at its initial public offering (IPO) in 2012 to approximately $273 per share by the end of last year.

Hence, if an investor had invested $1,000 at the start, they would have received around $6,000 in capital gains.

Investing in stocks is currently a good choice for the long term, one that can lead to financial freedom for retirement.

In addition to the income made from working, investing in stocks can provide regular passive income in the present and for the future.

Therefore, if you choose the right stocks – like Facebook – and keep them from now until retirement, you may well find yourself achieving the prized goal of financial freedom.

Contributed by: The Cambodia Securities Exchange, Market Operations Department
Email: [email protected]
Tel: 023 95 88 88 / 023 95 88 85

Disclaimer: This article has been compiled solely for informative and educational purposes. It is not intended to offer any recommendations or act as investment advice. The Cambodia Securities Exchange is not liable for any losses or damages caused by using it in such a way.