It’s another weak week for the market. Oh, I mean Singapore market.
While volatile, my US portfolio has managed to gain 8.5% over the past three weeks. However, the heavier weighted SG portfolio is down by 2.7% and that negates the gain. Feeling a bit sian (bored/tired of something in Singlish); not really because of the down SG market but more of I have limited ammo to deploy.
Beauty of Income Investing
Beyond that, I am pretty chill about it as my SG portfolio is mainly built for income. And that’s the beauty of income investing. The focus will always be on if companies can deliver sustainable dividend, and not on how others value them. Hence, one is more likely to hold on to the investment for compounding to work its magic.
I will be lying though if I say I don’t look at the price of the tickers. I look at it daily and sometimes a few times a day! However, having done my homework and more importantly knowing that I bought them for income, my frontal lobe has an upper hand over my amygdala.
One example I can give is my investment in HRnetGroup. When I initially invested in it in late 2018, I positioned it as a growth counter. While its business has grown, its share price did not follow. And with the pandemic, I decided to divest it at a loss, so as to add to my US portfolio. My thought then was my US growth counters are more likely to recover more and faster than HRnetGroup.
Late 2021, I decided to invest in the group again. The difference is I no longer view it as a growth counter but as an income counter. This changes how I deal with this investment. As long as I think it can sustain its dividend, I am no longer as affected by its share price.
One way to think about this is to imagine that the company is not listed, and the return you get from the investment is simply the annual dividend. So the questions you are going to ask the management will be how’s business? Is it profitable? What are the challenges? How much profit will be shared with investors? You will never ask about its share price, since it is not even listed.
It sounds similar to Buffett’s advice above, and we all know how difficult it is to follow the advice! I would argue that the annual dividend received from income counters make it psychologically easier.
Income investing the holy grail?
Nothing is guaranteed in investment.
Dividend is dependent on company’s performance, need of cash for company’s operation and growth, health of balance sheet, and willingness of management to share the profit. Like any business, the company can collapse and you will lose all your capital. Dividend received over the years might not cover the loss if that happens.
To generate meaningful income, one requires to invest a substantial amount of capital. A 5% yield on a $100,000 outlay only gives $5,000! So unless one earns and saves a lot, it will take decades to build this pipeline for future cashflow.
Despite the above downsides, I do think that income investing is a venture that is worth pursuing as it will bear fruits in the long run. Yes, there are risks to be taken but that can be mitigated by asset allocation and due diligence. Depending on your stage of life, experience and risk appetite, you can always allocate a certain portion of your asset for this, while still enjoying less risky investment like Singapore Savings Bonds and T-bills.
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