In every asset allocation for investing, portfolio allocation is as important as selecting what to invest in or to invest in a bit of everything else.
Just imagine walking into a grocery store to do your weekly grocery shopping. The market is cyclical in nature, and there will be sales, promotions and markdown deals. Such are events where you might get a deal for a steal. It doesn’t happen every day, rather the market does these corrective actions when certain world events trigger them. It could happen every week or every month.
So when it happens, it happens without much warning if any. And having an all weatherproof portfolio is the essential key to weathering such roller coaster rides, while fruit picking bargain buys to sell at a profit when the price rises. At the same time, taking away any emotional sentiments while you invest. Another key would be to divest through different markets – however, bearing in mind currency and geographical risks.
In today’s world, the financial products are ever so evolving and here are some of the equities related products which I would like to blog and share my own idea of how I go about asset allocation. However, a word of caution – everyone invests for different reasons and this should only be for reference. As with every other investment, I only allocate not more than 10% in each counter, and not more than 35% of total investment in any of the asset class or investment product – Equities, Unit Trusts, Bonds.
Bonds is like fixed deposits, they usually pay out fixed rate coupons on a half-yearly basis. There are some with maturity dates as well as those without. A typical bond subscription varies from product to product. There are some bonds listed in the stocks market available for retail investors starting at 1,000 units or some as low as 200 units. For SGX, the minimum for retail bonds is 1,000 units. The allocation for myself would be about 10-20% at the most.
REITs are Real Estate Investment Trusts that invests in properties to generate income and paying out up to 90% of their annual income to unitholders. These are generally good for retirement planning. I add about 30% to my portfolio of stocks for high dividends.
ETFs or Exchange Traded Funds are fund management companies that track equities according to index allocations. They replicate the indexes like DJIA, S&P500, STI etc; mirroring their performances to prove the underlying stocks which they buy into and list on the stocks exchanges for daily trading. This is an investment product which I hold not more than 20% of total equities portfolio.
Listed companies are basically individual stock counters listed on the stock exchange. They trade on a daily basis and some pay dividends while others simply don’t pay a dividend – usually technology stocks. Usually, this takes up close to 30% of my stocks holdings.
Last but not least, Unit Trusts. This is managed funds by fund houses that invest in a basket of stocks, some will reinvest the gains while others will pay them out as regular dividends or offer scrip dividend like reinvestment scheme of additional units.
Personally, I prefer Unit Trusts for the lesser risk, as I get to buy into many different funds and I can leverage the expertise of fund managers to invest. However, at this stage of my investment journey, I’m happy to hold not more than 10% of my total asset in this class. Though, when I first began, I started with Unit Trusts.
A pictorial breakdown of the investment products and where they fall under, which explains my investment strategy at this point in time. As the market cycle up and down and rate of return changes, the investment style will change as well.
Note: The above bar graph is for illustration purpose, the actual asset allocation will depend on market condition and adjusted with age. For the latest asset allocation, refer to the entry here.