I started to build my long-term portfolio in end-2019, with my goal being to invest in companies that pays out dividends on a regular basis (to supplement my income from retail trading, where income can be irregular depending on the ‘mood’ of Mr Market), and at the same time, to provide for me when I retire in the future.
When it comes to choosing companies to invest in, the company has to be one that pays out a dividend (to its shareholders) on a regular basis. Also, the dividend yield of the company (expressed in percentage terms, it can be computed by taking the company’s the latest full year dividend payout to its shareholders divided by the share price which you are invested in) has to be higher than the interest rate of the CPF Special Account (if it is not, then I will be better off to just put my money into it).
In that regard, REITs, or Real Estate Investment Trusts, come to mind – as they are required to pay out 90.0% of their earnings as distributions (which is the same as dividends, but for REITs, they are known as distributions) in order to qualify for tax benefits. Also, many of the REITs have a distribution yield upwards of 4.0%, and that they also pay out a distribution regularly (either quarterly, or half-yearly.)
Currently, my investment portfolio comprises of 10 REITs and 3 banks, and at the time of writing, the dividend yield of my portfolio is about 6.0% – which is 2.0% higher than the interest rate provided by the CPF Special Account, and one I am satisfied with.
Of course, things did not start out smoothly when I started out (just like everything else when we are new to it), and the following are 3 key lessons I have learned as a retail investor, which I hope for those of you who are new to investing, you will find useful, and that you can avoid the exact same mistakes that I made:
1. Starting off Too Late
I’m sure you’ve heard of this saying, ‘time is a good friend of a long-term investor.’
The earlier we get started, the more runway we have to build an investment portfolio that is able to provide for us (in terms of dividend payouts we receive from our investments) in our retirement years.
Personally, I only started out at the age of 39 (I guess if you do some calculations, you will be able to guess my age). At this age, I am already way behind many others who started investing when they were in their 20s. Not only that, the runway for me to build an investment portfolio that is able to provide for my day-to-day expenditures before I officially reach retirement age is much shorter, which means I will need to work doubly hard to build up this investment portfolio of mine (wish me luck on that!)
For those of you who are reading this, and still sitting on the fence wondering whether you should start building your investment portfolio, my personal advise to you is to get started as soon as possible – Especially if you are still in your late teens or in your early twenties, time is really on your side, and you should make use of this advantage to build an investment portfolio that is able to provide for you when you eventually reach retirement (the fact that you are reading this article right now shows that you are interested to get started, and that’s good to know; the next thing you need to do is to take proactive steps necessary to get started).
2. Do Not Run When the Stock Market is Having a Sale
One thing I noticed about the stock market – unlike online shopping sites like Lazada or Shopee where shoppers camp in front of their phones to be among the first to grab the things they want during sales period, when the stock market is having a ‘sale’ for good companies, everyone starts to flee (by selling their shareholdings at basement prices, incurring huge losses).
Times when the stock market starts falling are opportunities for us to invest in good performing companies at a discount, and we should take advantage of the opportunity, especially if the companies you are invested in (or looking to invest) continues to remain fundamentally sound – reason is because more often than not, when the market eventually recovers (they always do), these companies will be among the very first to see their share prices not only go back up to their previous high, but scaling up to hit new highs, allowing you to enjoy more capital gain on your investment (the difference between the price which you invest in the company and the price you divest your shareholdings in the same company – if its a positive figure, then its a capital gain).
Not just that, but companies that are able to record a growing performance over the years will see their dividend increase at a similar pace, hence allowing you to enjoy a much higher yield percentage in the years to come.
3. Buying in Multiple Tranches
One of the things I did when I first started out was to invest the entire sum of money I have allocated for a certain company in one single tranche.
Nothing wrong with that, but thing is that, should the share price of the company go down further, I will have no more money to buy more shares to bring down my average invested price.
So, what I tend to do these days is to break up the sum of money I have allocated to invest in a particular company into multiple tranches (between 2 to 4), where I will buy more shares should the share price of the company go down by 20-30% from my buy price – for example, if I were to buy 1 tranche of Company X at $1.00, I will buy another tranche when the share price goes down by 20% (i.e., at $0.80), to bring my average invested price of the company to around $0.90, and then buying another tranche if the price falls by another 20% (i.e., about $0.70 – computed by deducting 20% off my current average invested price of $0.90), so on and so forth.
So there you have it, the 3 lessons I have learned as a retail investor to share with you, which I hope you will find useful, and not make the same mistakes I did.
Of course, building an investment portfolio from scratch requires a lot of work, and if you are someone who is new to investment, it will make you feel like ‘giving up’ before you even get started.
I totally understand where you are coming from (because I was faced with the same when I got started 3+ years ago), which is why I have documented down every step you need to take to build your own REIT investment portfolio in my a book titled ‘Building Your REIT-irement Portfolio’ – where you will learn how you can sift out the wheat from the chaff (while there are 42 REITs listed in the Singapore Exchange, but not all of them are ‘investable’), and what you need to do to make sure that all the REITs you are invested in continue to remain fundamentally sound.
If you are willing to put in the effort to take active steps to build your very own investment portfolio, then this book is for you. You can grab a copy of it (either digital or physical version) here.
Are You Worried about Not Having Enough Money for Retirement?
You're not alone. According to the OCBC Financial Wellness Index, only 62% of people in their 20s and 56% of people in their 30s are confident that they will have enough money to retire.
But there is still time to take action. One way to ensure that you have a comfortable retirement is to invest in real estate investment trusts (REITs).
In 'Building Your REIT-irement Portfolio' which I've authored, you will learn everything you need to know to build a successful REIT investment portfolio, including a list of 9 things to look at to determine whether a REIT is worthy of your investment, 1 simple method to help you maximise your returns from your REIT investment, 4 signs of 'red flags' to look out for and what you can do as a shareholder, and more!
You can find out more about the book, and grab your copy (ebook or physical book) here...