Finance Smiths

Personal finance apprentices-in-training

Significance of capital injections

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I checked my wife’s Central Provident Fund (CPF) balances today and found out that her contributions from last month’s annual performance bonus and this month’s salary have been credited. It’s a pleasant surprise because I was expecting the crediting to only happen next week. As I load the net worth Google Sheet on my phone to key in the updated figures, I know this is an important moment.

For the first time in our lives, the total assets (cash, investments and retirement funds) sum to more than S$1 million. I don’t count us as having joined the double comma club because our net worth (after subtracting for the entire mortgage, tax and credit card liabilities) is way below that. I don’t include the value of our owner-occupied apartment in the net worth calculation because it will only inflate the number unnecessarily. Does nothing other than make me feel better about my self.

But I already consider it an achievement for our total assets to hit S$1 million. It’s still satisfying to see the double comma in the cell and I had to expand the cell width in the Google Sheet to see the full figure. It represents 8 years of hard work, especially in the last 4 years in Singapore. At the beginning, we felt like we were going no where with our wealth-building journey but our efforts eventually made a difference.

There are still a few problems with our total assets distribution, which is probably overweight on cash holdings and retirement funds. I found it difficult to increase the investment component aggressively when the equity markets have been priced at such high levels for a sustained period of time. The Dollar-Cost Averaging (DCA) approach still ensures I keep myself invested just in case the bull market keeps going for the rest of this year. Only time will tell whether I am an idiot for not investing more of the cash holdings.

Which reminds me about something else I’m not doing. I stopped tracking the profit/(loss) performance of my investment portfolio a while back. I still refer to StocksCafe to track the profit/(loss) on my individual stock holdings because I hope to one day sell those worst-performing stocks at a profit. Though I fear I may have to wait a long time for that to happen.

But I figured the profit/(loss) performance of my investment portfolio mattered less the more I relied on DCA. Isn’t that the point of monthly capital injections? Once it gets high enough and I don’t plan to adjust it downwards but only upwards when there’s market dips and crashes, I’m not sure why I should be worried about the portfolio performance anymore. At least not in the short to medium term. As long as I keep this up over the long term, odds are it should work in my favour.

I know it’s a stupidly simple approach but I’m lazy and I can’t be bothered doing too much thinking and planning. I guess capital injections inflate the investment portfolio growth performance but it’s not even a key indicator for me with this strategy. I just need to ensure that every component of my total assets grows over time and I can’t see how this is a bad thing.

Another sell transaction in Jan 2018

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This is a continuation of my efforts to restructure and simplify my portfolio. As I start my Maybank Monthly Investment Plan into a few REIT ETFs from today, I have decided to sell my last profitable individual REIT holdings – Starhill Global REIT (SGX: P40U).

Sale Proceeds: S$610

Profit Amt: S$20

Profit %: 3.28%

I’m now stuck with a number of individual stock positions in losses of varying degree. The worst ones are in the Telecommunications, Oil & Gas and Media industries i.e. M1, Starhub, SembCorp Marine, SembCorp Industries and SPH. The unrealised losses add up to about S$12,000, which is terrible.

I can’t even exit these positions with the current bull market and this goes to show how bad my individual stock picking skills are. Somehow, I chose a few of the worst-performing blue-chip stocks to be in my portfolio. I’m wondering whether I can still make small profits in the end if I wait long enough and these industries improve. It’s kind of like waiting for time to fix my mistakes, which is a benefit of long-term investing. Haha.

In the meantime, I hope to gradually reduce my portfolio to just ETFs so I can focus on my Dollar-Cost Averaging (DCA) and Value-Cost Averaging (VCA) index investing strategy. Without having to worry about how my individual stocks are performing. I plan to accumulate my ETF holdings to a large enough size such that I only need to do occasional portfolio rebalancing. While receiving dividend income (albeit lower) and reinvesting some of the dividends.

Sell transaction Jan 2018

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Just a quick update here. After setting up our robo-advisor accounts and standing instructions to transfer funds into them weekly, I started to realise it was pointless maintaining a separate portfolio of 6 x Vanguard LSE-listed ETFs on our Stan Chart Online Equity Trading Platform. A reader pointed this out to me a while ago about incurring high transactions costs when it comes to buying and selling these Vanguard LSE-listed ETFs. Plus they overlap with each other and our robo-advisor accounts.

I took advantage of the recent run-up in equity markets to sell all of our small 6 x Vanguard LSE-listed ETFs holdings for another round of restructuring.

Sale proceeds: S$2,000

Profit amount: S$100

Profit percentage: 5%

I keep trying to simplify our portfolio but continue to over-complicate matters by not sticking to one strategy. If you remembered from my past posts, I have done this once before i.e. selling our entire 12 x Vanguard LSE-listed ETFs holdings and ended up building a simpler 6 x Vanguard LSE-listed ETFs portfolio. Now, I’m doing the same thing but simplifying it into a 2 x Vanguard LSE-listed ETFs portfolio.

Vanguard FTSE All-World High Dividend Yield UCITS ETF (LSE: VHYD)

Vanguard FTSE Emerging Markets UCITS ETF (LSE: VDEM)

My wife will hold the LSE: VHYD since she’s mostly Value-Cost Averaging (VCA) and Dollar-Cost Averaging (DCA) on Singapore Equity and Bond ETFs. Would be good for her to have the global equity component (strong focus on developed markets) and increase the dividend yield on her portfolio. I will hold the LSE: VDEM since I mostly DCA on Singapore Equity and REIT ETFs. It’s also useful for me to have the global equity component but with a strong focus on developing markets instead to reduce the overlap.

I’m still making a number of mistakes with my portfolio construction as I switch to an ETF investing strategy. The bull market is providing me with an opportunity to fix them since I can still exit positions with profits. I’m hoping to firm up my approach and stop changing my mind by the time the next bear market comes around. It would be a much tougher and harsher learning environment if I get this careless.