Asked on 06 Oct 2019
I would like to invest but what considerations do you have when thinking of how much to invest in a particular counter, assuming your portfolio is zero now - no investments yet. For now, I’m just thinking about the commission charges, if I divide it out, each transaction minimally has to be at least about $8k for it to be “worth it”. Is this one way how you guys estimate how much to put into each counter and transaction too? And what other ways?
Yes, if you back-calculate the cost of investing in shares/ETF/REITs listed on SGX, it's around $8K to $9K per transaction to make it worth. Now I don't advocate just going into the market once you have accumulated $8K, it is actually more prudent to have a watch list, analyse the share first and then decide if it is a company you actually want to invest in. Watch for pullbacks in the share price, this represents an opportunity and a margin of safety for you, but be aware that the fundamentals of the company are still ok. On a side note, I do make sure that I do my transactions based on that size for the trade value.
On the allocation, there is no one-size-fits-all solution, as some people prefer REITS, some people prefer shares, etc. What's important is to make sure you achieve sufficient diversification that a price swing in any one counter will not have an overly adverse impact on your portfolio. When I bought my first share many years ago, yes, it was 100% of my share portfolio, but buying into other shares has steadily reduced the proportion of that share in my portfolio. So you'll notice that it takes time to achieve this. Don't be disheartened.
FYI no single share/REIT takes up more than 25% in my portfolio, and I'm aiming to eventually bring it down to 15% or less. My stock portfolio is also not more than 50% of my entire investment portfolio, which comprises of both bonds and UTs. And in that vein, I also have not included my CPF assets and the expected valuation of my private annuity.
I think I did something like this before and came up to the conclusion that 7+k to minimize the transaction cost. Have tried smaller amounts, and eventually, my own comfort level was if I got fees down to 1% or less of the overall cost, this was fine.
If you want to keep costs low, monthly plans like BCIP and invest saver can definitely keep the costs below 1% and helps deploy dollar cost averaging. The limitation is the options available, but there are quite a bit of good stocks listed in BCIP.
in comments below, I mentioned about my May purchase of 500 DBS shares at 27+, and the lower average cost of abt 25+ for 100 shares of DBS using BCIP while prices were sliding. Also explained why BCIP is not necessarily more expensive
In short, large investment trades have lower fees, but you have to put in a lot of money, you probably do less often, and the timing has a larger overall impact on the total cost.
My advice is to keep the fees low, but you have to do so while balancing the timing, size of the position and your comfort level of the stock.
On your 2nd question about allocation / % of the portfolio, this differs from person to person, depending on their circumstances, risk tolerance and time when they need to cash it out. No straight up answer but maybe some principles:
if your timing to cash it out is less than 5 years, you might consider less or no stocks as the market is volatile, and you may have a loss when you do need the cash.
ETFs and unit trusts are similar in that they have a portfolio of stocks, so they have a lower risk vs individual stocks, but not necessarily less risky.
REITs need to distribute 90+% of their income as dividends to get the preferential tax treatment, so they tend to be good cash-generating units. Multiple REITs also do quarterly dividends. It's like being a landlord at a fraction of the share and cost. They do not, however, get stellar in terms of price appreciation because most of the gains are already shared via dividends.
I customize my portfolio to focus more on dividends and have my method of allocating the positions relative to the counter's dividend yield. It's not something that's prescribed in textbooks, so I won't go further into the thought process. I would probably write a blog post of it in due time.
I maintain a portfolio of 19-23 counters. Portfolio theory suggests diversification, and the more the better. My view - some diversification, but not too much. By the time you have more than say 50... Either you have invested a lot into those 50 while keeping your fees low, you spread out your funds and have high fees, and/or you don't have the time to follow all 50.
Yes I tried other approaches other than dividends, but so far based on my three portfolios (cash/SRS/CPF IS), the dividend stocks have always fared better and more consistently over 2017-2019. They share upside, have lower downside, and you get paid dividends while waiting for the tweets or Brexit to end, so I actually don't mind waiting.
Stock picking varies for person to person, as a disclaimer I speak for myself... Stock picking is like picking your future son-in-law. You want someone who is spending within his means (ie profitable with a decent margin), honest and reputable (good governance and transparency score), able to provide for family (decent yield), not taking on shitloads of debt (manageable debt/equity ratio, and good interest coverage), and always have plans to improve their income potential (eg future growth expansion)
You can have many different types of son-in-law.
The ones that have fancy cars/houses behind a lot of debt, and it just takes one retrenchment, wrong margin call, business failure before they can't keep up with their spending and file for bankruptcy. Your daughter would likely struggle to make ends meet, and most likely eventually divorce.
Or the ones that are slow and steady, always trying to improve themselves, ever prepared for unfortunate events and eventually tide through their own crisis, and emerge stronger.
Which one do you trust your daughter or money with?
3 more comments
06 Oct 2019
07 Oct 2019
As long as my transaction fees is less than 1% I m good.
As I do DCA, so I have to use brokerage like SCB or FSMOne that charge lower fees.
The stocks ETF and REITS basically are equities. So I lump them into same category and they are about 75% in my portfolio. The rest are bond.
No, predefined asset allocation is the most important parameter.
With, just examples, TD Ameritrade or Charles Schwab
account & commission fees are 0.00 USD already ...
Many have given fairly detailed answers explaining their thinking behind it. I'm suggesting you study a formula used in betting: Kelly's Criterion/Formula. Essentially, the formula suggests that you "bet" a lot when you are more sure of the odds of the investment working, and "bet" less when you are less sure.
Most value investors will suggest that you study more, and place much fewer bets, much bigger bets, and less frequently. Warren Buffet is famous for saying that you should pretend that you only have a 20-slot punchcard, and that everytime you buy a stock, you punch a hole in it. Given this, the other answers that suggest that you "diversify" somewhat via 20 stocks is probably not the best. Diversification reduces the "volatility" somewhat (if you calculate the correlation properly), AND also reduces the potential upside.
If you have a long-term investing horizon, and have done your research, and dont need that money anytime soon, you should be fine.
It's called asset allocation. You go across asset classes and design a portfolio to meet your requirements and risk appetite. Read a book called Global Asset Allocation by Meb Faber (it's a free download).