Portfolio Allocation: My Investment Game Plan

Following up on my last post where I shared my quarterly stock picks, I want to zoom out and talk about the bigger picture: portfolio allocation.

Now, I know it might not have the same buzz as individual stocks, but its impact on performance is just as significant, if not more so.

Think of it this way: your allocation is like setting your overall game plan, the team formation, while those stock picks? They’re your individual players.

Here’s a quick recap of my investment goal and approach.

Over the long-term (five years or more), I aim to achieve an annualised return of 10% with this portfolio. This will be achieved via an allocation of 60% income stocks and 40% growth stocks.

For the moment, all income stocks consists of Singapore counters including REITs, which I will limit to 30% of the overall portfolio. As for growth stocks, they are mostly US stocks.

The table below summarises my planned and current allocation.

The portfolio is currently skewed toward income primarily due to the following reasons.

• Deployed most of the increased funds from CPF Investment Scheme (CPFIS) for income stocks.
• Took profits mainly from my US growth stocks last December.
• Sharp downturn in my US technology stocks over the past month.

While I am closely monitoring the situation, I have no immediate plan to rebalance the portfolio. Even if it falls outside the target range, I intend to remain on the sideline for the moment, given the current uncertainties in US markets.

That said, I might start a position in  SPDR S&P 500 ETF (NYSE: SPY) or equivalent, with CPFIS, if and when it declined by more than 10% this year.

Now, let’s take a closer look at the stocks in the portfolio.

Even after recent changes, I am still holding 32 stocks, equally divided between Singapore and US markets. You might think 32 stocks means good diversification, but the reality is that the top half of the holdings represent over 80% of the portfolio, with the top ten making up nearly two-thirds.

This significant concentration means I am dedicating more attention to the stocks shown in the image below.

It’s no surprise that the top half primarily consists of income stocks, dominated by SG banks and REITs. With a proven track record of sustaining dividends, they form the core of my portfolio, providing reliable cash flow

The growth stocks act as a booster to my portfolio. Typically, I initiate a small position (0.5-1%) and gradually increase it. This is because these high-growth stocks are inherently volatile.

While they offer higher growth potential, only some will eventually realise it. Moreover, these companies often command a high valuation, making them susceptible to significant price declines, even with minor negative news.

You might wonder, does this focus on growth stocks justify the effort and time? For me, the answer is a resounding yes, for two key reasons.

First, even a few successful picks can significantly boost portfolio performance. For instance, iFAST Corporation (SGX: AIY) and Arista Networks (NASDAQ: ANET) contributed nearly half of my profits over the past five years, despite Arista’s stock plunging over 30% recently.

Second, beyond the financial gains, I find gratification in witnessing the growth of companies I’ve picked through fundamental analysis. This intrinsic reward reinforces my conviction that growth stocks will remain essential to my portfolio, even as I enter my later decades.

I hope my sharing encourages you to take a closer look at your portfolio allocation. Whether you’re a new or seasoned investor, it’s a worthwhile exercise to ensure your strategy aligns with your long-term objectives.

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