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Investing has always been a personal decision and there is no single right way to invest.
Ultimately, we all invest to grow our money over the long term or provide some form of passive income stream by letting our money do the hard work for us.
The reason why investing in stocks is profitable over the long term is because companies earn profits, pay out earnings to their shareholders as dividends or reinvest them for the future, increasing their stock prices.
My investment journey spanning roughly 9 years (since I was in army) has seen its ups and downs – so it’s always been interesting to reflect on the journey. Back then, when I was a little more naive, I made several investing mistakes such as chasing high dividend REITs.
I had once invested $10,000 in Sabana REIT for its sweet 11% dividend yield, only to see its price crashing every month thereafter. Thankfully, I cut my losses early and exited at small loss, which was roughly 2 months’ worth of army allowance.
While it was painful to lose money, it was a worthy lesson on REITs that would last me forever – don’t chase high yielding REITs, but chase high quality ones with a track record of consistently growing DPU over time. That means looking for REITs with strong sponsors, low cost of capital, or a pipeline of properties that can be used to grow the REIT, among other factors.
Stock investing has always been a very enjoyable process because I like analysing the financials and business model of a company and what makes it tick. But when I started working and couldn’t devote as much time into such activities, I decided to invest passively for the majority of my monies through passively indexing the broad market.
With that backstory, here’s how I invest in 2020:
Establishing a core portfolio
The core portfolio makes up the majority of my holdings and I subscribe to the Bogleheads philosophy to manage my core holdings.
I am quite an aggressive investor, so I’ve decided to allocate my assets towards 80% stocks and 20% bonds in my core holdings. The 80% stocks component is invested in Vanguard All-World UCITS ETF (VWRA) – an accumulating fund listed on the LSE that invests in common stock of large and mid-cap companies in both developed and emerging markets, tracking the FTSE All World Index.
You can read more about my rationale in one of my previous posts, but in summary this broad-based indexing in the total world stock market of around 4000 stock holdings in 50 countries would be one of the best ways to own stocks at low cost (0.22% TER).
For my bond component, I use a mix of SSBs and SGD-denominated corporate bonds (MBH). It might not be the most ideal, since SSBs don’t rise or fall in prices, but they form part of my safety net in case stocks collapse which I can then sell/redeem to rebalance.
I rebalance my core holdings twice a year – once in June and another in December to keep it on the 80/20 target by buying the asset class I am short of.
So it’s pretty simple – VWRA and SGD-denominated bonds in my core holdings for the ultimate buy-and-hold portfolio with no plans to sell.
Satellite portfolio of factor tilts
The second portfolio that I am exploring is a satellite portfolio that tilts towards proven long term factors of excess returns.
As I explained in the post why you should consider factor investing, there are well-researched factors such as value and size that can lead to higher risk-adjusted returns over time.
You can think of it as doing fundamental analysis and buying a universe of stocks systematically – companies that have better profitability (quality), trade at below book value (value) and smaller in size (size) have higher tendency to outperform the general market.
The way I choose to implement this strategy is through a satellite portfolio with Endowus – through them I’m invested in Dimensional Fund Advisors’ world equity fund (accumulation) that has been loaded with tilts towards factors of value, size and quality.
Kyith from InvestmentMoats has written a solid article on DFA funds for Singaporeans which you should check out if you’re interested.
MoneyOwl also has a similar portfolio, but I’ve decided on Endowus because they offered a more holistic (cash, CPF, SRS) solution for now and I like how your assets will be custodised with UOB Kay Hian directly so it’s a safe long-term solution.
I also have a low-volatility factor tilt for stocks in my DIY portfolio which I am also exploring, and so far it has worked pretty well during the recent February 2020 market correction – reducing my drawdowns compared to the wider broad market.
Since this is a small satellite portfolio, we shall see how the factor tilt strategy performs over time, but even if it doesn’t, it should not underperform the core portfolio by a large margin.
REIT portfolio for dividends and income
If you read my introduction post to REITs, I like investing in REITs due to their long-term price appreciation and income-generating potential.
My REIT portfolio here is really just for generating periodic quarterly or semiannual cash flows that I can use to rebalance my other portfolios or spend them as a reward to myself for building up my cash cows – because seeing cold hard cash coming into my bank accounts keeps me motivated to continue building them!
My ideal strategy is to own a portfolio of high-quality REITs directly through my own analysis but trading costs have remained a bane. So for now, I have chosen to own them passively in a market capitalisation weighted REIT ETF.
Depending on the index (and ETF), you might get very different returns and volatility profile of your REITs so it might be wise to do a little research on the different construction methodologies of REIT ETFs out there. Until there is a way for me to own REITs directly and cheaply, then the benefits of diversification really help to lower my risks here.
Syfe+ has a managed REIT portfolio with their launched last month to invest in a discretionary portfolio of Singapore-listed REITs which I briefly blogged about last week. It is one way to implement a REIT portfolio, so depending on your needs, you should see which is the best solution for you.
On the contrary, overweighting REITs might not be a wise strategy as they also exist in various market benchmarks in their market capitalisation weights. If you pursue such a strategy, then you must be willing to accept returns that either deviate sharply from the benchmark (in both directions) or accept higher risks for the same returns – something known as dispersion in finance.
For me, the benefits are more psychological than anything. Who doesn’t like owning properties that house the companies you invest in, while giving you a regular income stream that you can spend?
Finally, I also set aside some money as a fun portfolio to invest in individual stocks that I like. It makes investing a little more interesting that I can use for conversations with people.
This portfolio (as the name implies) is absolutely just for fun – and I am willing to lose 100% of my money in this portfolio so you can take it like I am speculating on stocks that might outperform the market.
In this portfolio, which I try to keep no more than 10% of my investments in, I have invested in stocks like JD.com, which I believe have been mispriced by the market. I am super long the Chinese economy and e-commerce in general, and taking a position in JD.com is one of my biggest single-stock bets.
That’s it, my 4 portfolios within my investment portfolio that I count on to generate regular income, build long-term wealth and also a small bet on exceptional returns from the stocks that I like.
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