In 2020, I detailed my investment strategy for this year. It seems strange that another year has once again flew by, and we are stuck in the second year of COVID-19 with no end in sight.
Slowly, but surely, things will return to normal; it’s been a roller-coaster year of lockdowns, opening up, lockdowns and opening up. We’ve seen good vaccination progress across the world and pockets of travel bubbles forming, so I believe 2022 will be a year where things will start to become more optimistic at least when it comes to travel and social/mental wellbeing.
Anyway, since this is a personal finance blog and with this year coming to a close, let’s review portfolio performance, lessons learnt and how I will position my portfolio for 2022.
Prefacing the long post with a quick market commentary might be helpful to set some context.
The global economy is actually recovering well – earnings growth has been relatively strong and monetary policy is still accommodative – although the Fed is beginning to taper its bond purchases and eventually stop bond purchases by mid 2022.
We’ve seen inflationary pressures ticking in over the past few months, with cost push inflation from supply chain constraints and The Great Resignation and demand pull inflation from consumer revival spending as the lockdown eases.
Valuations for US equities are now in the stratosphere and trading at more than 2 standard deviation above historical average. The P/E ratio for the S&P 500 is 38, posing significant risks of correction especially if earnings disappoint, from higher than expected inflation or other economic shocks.
Given the bull market fuelled by loose monetary policy and unprecedented stimulus, 2021 has been a great year for investing, just like the year before that.
On the equities side, I continue to play the boring and diversified card with a 80% allocation to VWRA and 20% as a satellite tilt towards technology stocks, Chinese equity and REITs.
Core equities portfolio anchored on VWRA
The VWRA-anchored portfolio is up 13% over the past year with some small dips along the way. Since VWRA invests in a globally diversified portfolio of publicly traded equities, it’s invested in the top names you can think of – Tesla, Apple, Microsoft and Berkshire Hathaway; and stocks like AMC, Palantir and GameStop too.
The other 20% is divided between REITs and Chinese Tech (KWEB). The REIT portfolio is pretty stagnant due to COVID lockdowns and Singapore’s slow reopening process – it collects the 4% annual dividend yield and helps pay for some of my recurring expenses like taxes.
However, Chinese Technology stocks went through a massive correction this year, and they are currently down 50%-60% from their highs. It’s not unexpected; Chinese equities have historically been extremely volatile and risky with large swings in both directions.
I sit on a slight loss (-15%) on that position as I bought in at a long-term support level but didn’t add a stop loss when it broke below the level. But it’s less than 3% of my equities portfolio so the impact on my returns is minimal.
I am still holding them as I think they have strong long-term earnings potential and at current prices they are a good value play; but there are limits on upside in the near term as many are looking to break even or sell on whatever bounce that comes.
The lesson learnt here is that while the economic growth potential of China is huge, it doesn’t necessarily translate to stock market performance. Investing in Chinese equities come with lots of risk – from political to regulatory and governance risks. The crazy run up in Chinese equities last year came crashing down equally fast.
Overall, my equities portfolio is sitting on a cool profit but I have been periodically selling small sums of equities to rebuild my war chest which was previously fully deployed.
With rates potentially rising in 2022 and the yield curve looking flatter, I intend to build up and keep about 10%-15% of my portfolio in liquid cash outside of my emergency funds for capital deployment during drawdowns.
Other than rebuilding the war chest, the strategy remains unchanged – 80% on the core allocation (i.e. VWRA) and 20% in satellite strategies (i.e. income and Chinese Tech).
Although I previously wrote about V3AA and seriously considered it to be an integral part of my portfolio, I’ve decided against it due to its relatively large bid-ask spreads every time I want to buy in.
My crypto portfolio has ballooned too with the raging bull market and generous airdrops despite cashing out periodically over the past year and the recent correction.
Most of my assets (6-figs) are deployed conservatively across DeFi and I also run a small BTC/PAXG strategy on lending platform Nexo.
While I am long-term bullish about crypto assets and Web3 related themes like DeFi, the metaverse and NFTs, I am currently neutral on the crypto market as there are a lot of macro and regulatory uncertainty ahead that will pose significant risks to a crypto portfolio. The goal is to find a right mix of allocation in crypto assets that will weather potential headwinds while staying invested in the next decade.
In terms of assets I am mostly long Layer-1 blockchain tokens and hard proof-of-work assets like BTC. I avoid most farming or inflationary tokens that can be produced for free unless they have native utility.
CPF portfolio with Endowus
Endowus has been a trusty sidekick for growing my CPF portfolios, and my parents’ cash, CPF and SRS portfolios.
For my personal CPF portfolio, I allocate to the 60/40 Flagship advised portfolio monthly; and plan to retain this allocation until my next life stage, which is for the downpayment for a house.
When that day arises, I might consider using this capital for a housing downpayment, but until then, the 60/40 Portfolio helps the idle cash in CPF OA keep up with inflation.
I previously did a lump sum CPF OA to SA transfer and emptied my CPF OA for an irreversible 4-5% yield on SA balances, which on hindsight might not be the best decision since investing with Endowus gives you the ability to put your OA funds to productive use.
Nonetheless, my CPF SA funds now generate more than $2500 in interest (and always growing) annually for me until I retire and hopefully can help me keep up with the ever increasing BRS/FRS requirements in future.
Strategy moving ahead
I’d like to think that I have a barbell strategy when it comes to investing without taking excessive risks. Many portfolios are focused on returns (e.g. 100% Chinese equities or 100% crypto) without taking into account the risks to achieve those returns.
For me, I setup my equities portfolio with a strong foundation that gives me the ability to obtain cheap leverage/margin financing which I can then use for cash and emergency needs, then layer that portfolio up with diversified exposure to crypto which offers a higher Sharpe ratio than traditional equities.
Within each asset class, I may take a small proportion (e.g. 10%-20%) to invest in higher risk/returns trades with the risk of losing them all. This way, I get to scratch my investing itch, stay exposed to multiple asset classes without losing everything (even if I do life still goes on) and potentially find multi-baggers during that journey.
Outside of investing, which only makes sense once you have the necessary capital to drive returns, finding new income streams, expanding current ones and keeping expenses flat are my other key financial goals for 2022. I wrote about my thinking of them in the Financial Flywheel article – do check it out if you want to understand more about my framework when it comes to personal financial management. My updated goal is to hit $1 million in assets including CPF by 30. I am more than halfway there, so risk mitigation is a key part of my strategy.
All in all, 2021 has been a nice year to me, and this blog has not only allowed me to share my experiences with everyone, but also inspire many who want to follow this spider’s footsteps to financial independence.
Wishing you a happy 2022!