AMA SG Young Investment
Asked on 07 Sep 2018
Qs: Choosing capital gains or dividend paying investment?
Short Answer is to pay yourself first.
The correct mindset is important and having a Safety of Margin is important.
By getting sustainable dividend with low payout ratio will give you the cushion and time to wait for capital gains if the Business is a Growing Business.
If i getting 50 votes for this reply, I will give a longer answer.
Depends. Since you are 21, will you be taking on study loans in the near future for your studies? If yes, better to just park that 10k in safer products like cimb fastsaver or SSB. If its a no, you can try to invest in those 2. Depends on your risk appetite.
Just to set the stage right, I am assuming you are talking about equities only. For all equities, they generally have both capital gains and dividends
Total Returns = Capital Gains + Dividend Yield
To decide which type of investments to go for, you need to consider what’s the
purpose of investing this sum of money?
If its to help you build a passive income stream to sustain a certain kind of lifestyle in the near future, I would say income-driven investments where most of your returns are coming from dividend.
If you have no need for the passive income so early in your life, capital gains is what I will suggest. The reason is because if you have no use for the passive income, you will either be spending it unneccesarily or reinvesting. Reinvestment will lead to risk such as inavility to generate the same type of returns had you went for a growth driven strategy, lack of discipline to reinvest etc.
Other considerations in determining your investment strategy:
This is in relation to your answer to the first question. In general, the longer your investment period, the more risk you can take because you will have more to recover in the event of a market decline.
This depends on your reaction towards market volatility. If you’re those that cannot sleep when market is volatile, go for a safer asset class like Singapore savings bonds. If you’re a super aggressive investor, you can go for risky asset class.
Last but not least, if you notice, most of my points are about risk and not returns. This is because investment should have a hevat emphasis about managing your risk to get the risk adjusted return you need. Returns will come with due diligence in managing your risks properly. You can simply get super high returns by taking a lot of excessive risk. (but is it worth losing all your money?)
There are many other considerations but those are discussion for another day haha hope this helps :)
I think it is better to buy a stable blue chip stock that pays out constant dividen. If the company’s business is sound the stock will also appreciate over time.
smaller companies might have bigger chance of higher growth with capital appreciation however You Have to do quite a bit of research.
As you are young with 10k capital for investment, thus you need to increase your capital to reach a scale for more sizable returns.
Therefore, now go for capital gains to accumulate your war chest.
After you have work and financial plan monthly with savings for emergency and investment and you would want to retire early, or simply do not want to depends on a salary for living for long, then switch to
Capital gain happens when the company's profit increases, which usually translate to higher dividends. Regardless of age, when evaluating a company, you need to seek capital gain potential else dividends will fall when profits fall.
Capital gains but from what I understand, unless you're willing to put in the effort to chase annual reports and read analyses, it is hard to find stocks in SG that have capital gains. These tends to be pretty small companies!
So I would say depends more on the time you're willing to invest, not just the cash!
Would honestly rather put that first 10k in an ETF to work while I read up, even if i'm keen on capital gains.
Since you are young, you should definitely go for capital gains in my opinion. Once you have a good amount of capital you can change your portfolio into dividend paying and retire early using dividends for expenses
I follow the golden rule of Warren Buffet that "Never put all eggs in one basket". That's why I would love to suggest you to put 5k in capital gains and 5k in dividend paying investment.
Moreover you can also try for REIT's, a good REIT provides you more than 50% return of investment. chech out my post https://seedly.sg/questions/what-are-the-key-criteria-for-evaluating-reits
08 Sep 2018