One of the key considerations for my current lifestyle is to ensure I don’t run out of cash before I can access my CPF-OA (five more years to go).
I achieve this by maintaining a cash buffer that covers three years of expenses. This buffer is replenished by dividends and by selling a portion of my investment portfolio’s cash holdings.
The above image provides an overview of the plan. You can find more details by clicking here.
Update to the plan
A year away from the daily grind provided me with more time to explore the world of investment. Through writing blog posts and creating Youtube videos (which are currently on hold), I gained a clearer understanding of my investment approach.
Regular readers are familiar with my goal of investing for both income and capital appreciation. However, it wasn’t until last year that I finally grasped the key concept of income investing (or dividend investing).
You might be wondering, “What’s so difficult to understand?”
While receiving dividends from investments is the fundamental concept, I used to be overly concerned with share price fluctuations.
It was only last year that I realised that the price volatility is irrelevant for an income investor. The focus should be on securing reliable, recurring income through investments in companies with consistent earnings growth.
Read my recent article, “Dividend Investing: The Goldilocks Approach to Building Passive Income”, for a deeper dive into my income investing philosophy.
How does this relate to my drawdown plan?
The initial plan was to withdraw from my portfolio immediately once the year-to-date (YTD) return, including collected/expected dividends, reached at least 10%.
With my newfound understanding of income investing, I’ve decided to add an alternative trigger for the drawdown.
When the combined total of capital gains from US growth stocks and collected/expected dividends from income stocks reaches a 10% return, I will trigger the drawdown by selling a portion of the growth stocks.
This accomplishes two goals: maintaining a focus on regular income from dividend-paying stocks and profiting from my US growth stocks in a potentially inflated market.
Details of transaction
On Monday, the trigger for selling a portion of my US holdings hit. I was considering delaying the sale as I would be off for my Bintan trip the next morning, I ultimately decided to stick with the pre-determined strategy.
With the selling, US holdings were reduced by about 2 percentage points, from 29% to 27%.
The Greed Whisperer
It’s subtle, but I could sense the whispers of greed creeping in during this process.
The market’s on a bull run, a voice inside urged me, “Maybe wait a bit longer?”
“See,” it taunted after I sold, “the market went up even higher!”
Having a plan in place allowed me to acknowledge this emotional pull and stick to my selling strategy.
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