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How to Allocate your Portfolio

(This article is brought to you by Some Ideas on Investing in Singapore)

I’m going to share some of the ways that you can allocate your portfolio according to the different amounts of money that you are able to invest (those above your emergency fund and not needed for any big-ticket purchases).

Straits Times has done a similar article on this topic, How to invest if you have $20k or more (19 Jul), but I disagree with some of their recommendations (especially since I don’t really like the idea of unit trusts and prefer index funds)

If you have around:

$10,000 (or less) to invest….

100% Index funds or ETFs

You can place your money in index funds or an exchange-traded funds (ETFs), the latter can be bought and sold on the SGX like shares, but some of the funds are specified Special Investing Products (SIPs) and would require you to meet some criteria. This would give you diversification as investing in the fund will give you exposure to the different shares in the fund.

For example, investing in an index fund that tracks the Straits Times Index (STI) will spread your capital across the 30 shares that make up the STI, according to the size of the market cap of each company as the STI is a capitalization-weighted index.

$50,000 to invest….

60% Index funds or ETFs 40% Stocks or REITs

Instead of investing in index funds or ETFs, if you are more adventurous, you can try investing in individual companies or REITs (but I think it’s still good to keep a good part of your portfolio in index funds or ETFs). Picking out individual companies will require a bit more time to research the companies on your own to pick out the good from the rest. The ability to pick out good companies will require some experience to master, but the potential returns will be much better than investing in index funds or ETFs if done well, but don’t try to do so if you’re not willing to put in time to learn and research as you may end up only paying “tuition fees”.

$100,000 (or more) to invest….

70% Stocks or REITs 20% Bonds 10% Cash

With this amount, you may be able to purchase all of the 30 shares in the STI on your own to avoid the expense ratios of index funds and ETFs and another advantage would be getting dividends as the companies pay them instead of waiting for the funds to pay them out. You may still incur some minimum brokerage charges if you try this, but if held over a long enough period, this would be cheaper than using index funds or ETFs.

Another advantage of not using index funds and ETFs at this point is the ability to buy shares that you think may outperform the market. Let’s say you think that the finance sector may not do so well in Singapore, you can cut out the finance stocks, such as DBS, UOB and OCBC, and go for the companies that you think will outperform the market.

You may also want to keep some of your portfolio in bonds and cash as well to better protect your portfolio should the market enter a downturn, you still have an income and cash to take advantage of the drop in share prices to buy into the market at the cheaper prices.

I think that this is a good way to invest if you have above $100,000, unless you have amounts in the millions in which case I have not much idea of how to invest in that region.

Summary

Overall I support index funds and ETFs as a good way for people with smaller portfolios to be able to access a wide diversification across different shares in the index that the fund covers. (You can see my post on indexing at: Thoughts on Indexing) As your portfolio grows, you may want to move into individual shares as they offer the potential for better returns and with your larger investment, it would make more sense to spend more time researching the companies (amount earned over time is higher).

When investing in the market, you may also want to practice dollar-cost averaging to ensure that you do not enter the market at too high a price and get your fingers burnt when the market drops, but don’t invest too small amounts such that you spend a large amount of your money on minimum brokerage fees. While it’s good to diversify to reduce your exposure to any one company, investing in too many companies dilutes the returns of the “winners” that you have chosen.

Free Investment Resources Singaporeans Can Benefit From

1. BORROW BOOKS FROM THE PUBLIC LIBRARIES

The best way to fish in an unfamiliar territory is to research about it first. Know the basics in investing and trading by visiting your local or regional public library and borrowing their books. A few examples of the books you may find are “The Resilient Investor”, “Trading Options for Dummies”, and “7 Simple Strategies of Highly Effective Traders”.

The National Library Board (NLB) ensures that the information given in the public libraries are trusted, accessible, and comprehensive. Their genuine aim is to build a knowledgeable nation with generations of readers.

What is great about NLB’s website is that you can browse the availability of the book as well as find the list of libraries where it is located. This way, you do not have to go to a nearby library only to find out that what you are looking for is not there. For instance, you can find the 7 Simple Strategies of Highly Effective Traders book in 12 public libraries including Toa Payoh Public Library – our nearby library. Start searching by yourself, here.

2. ATTEND A NO-COST WORKSHOP ABOUT INCOME INVESTING

Last Tuesday, I had an opportunity to attend a workshop named: “Get Rich Slowly, The Income Investing Way”. Terence Tan led it. Terence Tan is the creator of the first Income Investing Programme in Asia-Pacific called Income Mastery Programme (IMP). Also, he is the chief investment strategist in Giants Learning Technologies as well as the founder of First Traders Network.

With a guy whose experience in stocks spans over 16 years, I thought to myself that I could certainly learn a thing or two. To get things straightened out, if you are looking for a method to get rich quickly through investing, this talk is not for you. Instead, this is for people who seek financial freedom by patiently and diligently pouring their resources for years on end.

Image Credits: facebook.com/IncomeMasteryProgramme

What you can expect from this free 2-hour workshop is to gain a glimpse of the mindsets of some investors such as the renowned Warren Edward Buffett, to uncover the principles of income investing, and to determine the right stocks in 15 minutes or less. Furthermore, he will introduce you to his own methodology called the Income Mastery Programme. My impression of IMP after the workshop was it was a feasible yet gradual way to generate profits while in the midst of low-risk trades. By lowering down the risk, you will be confident that the stocks make money over time. If you are interested to know more, you can register for their upcoming talk on August 18, here.

3. TAKE PART IN A HUGE INVESTMENT FAIR – FOR FREE

Dating back from 2007, Invest Fair Singapore is ShareInvestor’s annual event for investors and traders alike. Enjoy the presence of world-class speakers, key stakeholders, and other experts in the financial industry by registering here.

The list of featured speakers include Marc Faber (Investment Expert and Best-Selling Author), Kathy Lien (World-renowned Currency Strategist and Best-Selling Author), Roger Monthomery (Chairman and CIO of Montgomery Investment Management), and one of Forbes’ 2014 list of Singapore’s 50 Richest men – John Lim.

The seminars start with “Simple Trading Strategies for Fast Profits” on August 15 and ends with “Portfolio Allocation” on August 16. Best of all? You can get exclusive promotions from their exhibitors and stand a chance to win prizes at their lucky draw.

Image Credits: facebook.com/ShareInvestorSG

World Value Invest Fest 2015 Power Lessons [David Kuo]

Previously we explored into the mind of Warren Buffett through Mary Buffett’s invaluable lessons on Mr Buffett’s Value Investment Methodology and some of the power pointers on how to select a company to invest in. This time, let’s draw from David Kuo’s experience on Managing Risks In Stock Investing!

What is ‘Risk’?

A term we hear too often, yet never really having a perfect definition of what risk is. There are so many types of risks out there and how do we effectively manage all of them at once? Almost impossible! At best, we can mitigate them, but probably not completely eliminate them. But what good is identifying all the various types of risks affecting you, when you fail to know yourself? Risk profiling. If we don’t even know what is our risk profile, how can we select investments that have risk profile that is aligned to our own? Is it important for them to be aligned? Definitely! Say a 65-year old man who wants to invest his retirement fund for income, would you recommend him to buy speculative stocks with P/Es in the hundreds and no fundamentals? Of course not! Similarly, have we overlooked the risk of not a comprehensive risk profiling of ourselves and check if our investment decisions are aligned?

Different Strands of Investing for Different People!

There are so many different strands of investing:

Growth
Income
Blue Sky (Start-ups)
Sideways
GARP (Growth At Reasonable Price)
Bottom-Up
Top-Down
Value
Index Trackers

You don’t have to be afraid that you won’t find one that doesn’t suit you! First you need to identify where you are in life, what your investment goals are, and how much risks are you willing to take on to achieve your investment goals. Different strands of investing entails different risks and requires different investment mindset and strategies. Identify the strand that you want to focus in, read up on the skills and mindset required for the different strategies. For example, Index Trackers would adopt a very different mindset require a different skill set from Value or Growth investing. Index Trackers take on a more passive approach towards investing while gladly accepting the diversification it provides. Growth and Value Investing however requires the ability to not just read financial statements, but also, understand business as a whole and consider it from the point-of-view of a businessman. Both method works, but it depends on your investment goals. Are you trying to get from rags-to-riches? Or do you want to simply take a back seat and enjoy the ride? There’s no right or wrong, but it’s worth exploring and knowing yourself a little more.

How To Avoid Panicking

David Kuo shared this very powerful quote which many of us tend to forget – “Do not confuse the price of the stock with the story behind the stock.”

Indeed, does the price of the stock dictate the story behind the stock, or is it the other way around? If you only knew the price of the stock and not the story behind the stock, you would definitely panic because you have nothing to fall back on! David emphasises on the importance of knowing why you bought your stocks in the first place. If you knew the story behind the stock, would a falling price cause you to panic or would you see it as an opportunity to buy more at a cheaper price? If you knew the story, you would at least have the mental and emotional capacity to ride out the rough patch, having quiet confidence that the company’s results will show for itself in the long-run. “There will be delays in our investing journey”, so ALWAYS have a margin of safety! If we can’t eliminate, at least mitigate the temporary losses! Lastly, ask yourself, do you have the courage to invest when times are bad? 🙂

World Value Invest Fest 2015 Power Lessons [Mary Buffett]

With the recent conclusion of Value Invest Fest 2015 hosted by Cayden Chang, the founder of Mind Kinesis Value Investing Academy, alongside with many world renowned speakers including Mary Buffett and David Kuo of The Motley Fool, I picked up many lessons and wish to pass on their invaluable lessons taught to you! Many topics were touched on during the conference, including funds, portfolio management, investment principles, and even financial planning. It was a very comprehensive package in my opinion and I can’t wait to share! So let’s get started!

Mary Buffett

On Mary Buffett’s part, she taught mostly on how to select a company to invest in. As a protege to Warren Buffett, it’s not surprising that she emphasises on what Warren Buffett teaches in his books. Some of the key pointers were these:

Management – Understand the management and how the organisation provides value to its investors. Are the corporate actions taken to value-add to its investors or are they spending at the expense of investors’ money?
Think long-term! – Always begin your investment from a business perspective. An investment is most successful when it is most business-like. When she mentioned long-term, she also meant to buy into a company that you would never want to sell.
Circle of Competence – Once again, like what Warren Buffett always say, invest based on your circle of competence. Why spend so much effort on an industry or company you don’t understand at all? There are thousands of companies listed around the world and there will be bound to be a company that you can understand! So don’t force yourself to understand a business that you can’t.
Margin of Safety – Always purchase companies at a price with a margin of safety. Stock Price < Intrinsic Value. Note that there are many different angles to look at when considering margin of safety. Examples such as P/E and PEG are the commonly used ratios to determine margin of safety. Depending on how in-depth you want your margin of safety to be, decide on the number of variables to factor in.

Warren Buffet’s Value Investment Methodology

Mary then goes on to discuss more in-depth what to look out for in a company:

Buy into companies that have a durable competitive advantage. This means to buy into companies that have the ability to raise prices and people would still buy them with little competition. They tend to be items of necessity or even strong brand names. The idea is to find companies that own a piece of the consumers’ minds. Examples would be Gilette for shavers, Kleenex for tissues, Panadol for paracetamol. Get the drift? The first brand name that comes to your mind when you want to buy an item.
Buy into companies that have predictable and consistent earnings. She continues by mentioning that compound growth is the key to long-term success, CAGR.
Buy at a good price. This is from the wise adage of Benjamin Graham, “The future value of every investment is a function of its present price. The higher the price you pay, the lower your return will be”

And of course, how could she miss out on the 2 Rules of Warren Buffett?

Rule #1: Never lose money.

Rule #2: Never forget Rule #1.

At closing, she reminded us that Value Investing requires a lot of patience and discipline. Would you be patient enough to wait for the stock price to come to a discount? Would you have enough discipline to stick to your investment methodology? “It’s easier to stay out of trouble than to get out of trouble”. Don’t be too eager to jump into a trade or investment! She ends her speech by reinforcing the importance of educating ourselves. The more you learn, the more likely you will earn! Remember, a lack of knowledge is risk itself! Since we can’t control inflation risk or corporate risk, work on something we can. Ourselves! Stay tune for more lessons on the other speakers like David Kuo of The Motley Fools!

Is Property A Viable Investment Tool?

A place where you can securely reside with your loving family – that is what you call a home.

Since land is scarce in Singapore, properties had always been a go-to investment tool for many. The majority of these investors have strategies limited to purchasing, reselling, and renting flats or condominiums. But, in order for higher returns to generate, one must consider investing to a range of other properties such as using the Real Estate Investment Trust (REIT).

And for a beginner with merely S$10,000 on hand, is property a viable and smart investment tool?

PROS

1. GETTING MORE LEVERAGE

With the banks help, you can have the ability to leverage your capital, make a down payment, and increase your overall return. Simply, more leverage enables you to pay less money upfront (e.g., 30% down payment and 70% from the bank) while making more money in the process.

2. CAN BE A SHIELD AGAINST INFLATION

Inflation occurs when there is a spike in prices and fall in the purchasing value of the dollar. As the miscellaneous for the property increases, the rent, and its value also increases. This is why property investing can be a good shield against inflation.

Image Credits: .Martin. via Flickr

CONS

1. CAN BE TIME CONSUMING

Finding a property in a decent location, building a good relationship with the tenants, and maintaining the condition of the property can be time consuming. Time that may not be in the good side of most.

2. THE RISKS ARE HIGH

A two-bedroom HDB flat can cost about S$250,000. That is a huge sum of money you may be willing to risk if you are serious in property investing. The risks only increase when the investor does not understand how the property market works or when and where to invest. Hurrying up without analyzing the situation thoroughly can only bring about more damage (e.g., bankruptcy) than good.

ULTIMATELY

You can lower the risk of property investing by diligently researching and analyzing reports, tests, and the current situation. Furthermore, investing in below market value properties backed up with insurance can help manage the risk. You would not know all these things unless you are well informed!

A buyer with an in-depth financial knowledge is important to the success of a property investment. So, if you lack sufficient knowledge, seek advice from a financial consultant or other professional advisers. And, when you find the “right property”, ensure that you keep your expectations realistic and keep your finances in tact.

Sources: 1, 2, & 3

Image Credits: Mark Moz via Flickr

DISCLAIMER: THIS ARTICLE DOES NOT FORM PART OF ANY OFFER OR RECOMMENDATION, OR HAVE ANY REGARD TO THE INVESTMENT OBJECTIVES, FINANCIAL SITUATION, OR NEEDS OF ANY SPECIFIC PERSON. BEFORE COMMITTING TO AN INVESTMENT, PLEASE SEEK ADVICE FROM A FINANCIAL CONSULTANT OR OTHER PROFESSIONAL ADVISER.

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