Mid Year Review (4) – Growing my Index Portfolio Steadily

Followers of my blog would know that besides my equity portfolio, I have an index portfolio that I mentioned periodically. Started in 2017, it has since quadrupled in size.

Different from my equity portfolio, my index fund portfolio is made up fully of ETFs.

Furthermore, it goes beyond just equity ETFs to include Bond, Gold and Reits ETFs. It is actively balanced periodically to achieve the following target ratios:

TARGET

  • Bond ETF – 30%
  • Equity ETF – 45%
  • Gold ETF – 5%
  • Reits ETF – 20%

Today, the ACTUAL ratios are

  • Bond ETF – 29%
  • Equity ETF – 47%
  • Gold ETF – 5%
  • Reits ETF – 19%

Close right ? 🙂

Besides targeting the ratios among the various investment products, I also aim for a 35% / 65% split between SG ETFs and Overseas ETFs. In contrast to my equity portfolio (see previous post), I flipped the ratio here to get more overseas exposure. The reason that I am willing to do so here is because my risk is lowered via a “basket of stocks” when compared to an individual stock. In my opinion, an overseas exposure has more structural risks and holding individual stock amplified the risk.

Today, the actual split is 39 % / 61%. Also close :-).

All thanks very much to active and periodic balancing of my index portfolio.

Photo by Alesia Kozik on Pexels.com

Just a short recap, why do I create an index porfolio?

The main reason is to create a “stress free type” investment approach that I can just build on continuously and rebalance once in a while. I don’t have to perform much company research for index portfolio. I just have to decide on where to put my money when I invest – Bonds/ Equity/ Reits (via the rebalancing process) and in SG or HK or US or Japan, Value vs Growth ETFs ( to catch any macro economics trend and to meet my SG / Overseas target).

The index consists of different investment products as they are thought to move in opposite direction. When equities return is good, bond return will be weak. When equities collapse, bond and gold provides a stable foundation and some passive incomes.

Compared to my equity investment, this is almost “stress free” as long as I use cash that I can put aside from daily expenses. This is wonderful as you may remember that I shared in my previous post, to be able to sleep well is priceless.

Started in 2017 following an advice from my best friend, it has quadrupled in size since then. In fact, I seldom sells my holding in my index portfolio – I just keep building it up. I have been adding to it whenever I have liquidity, for example, when I received my year end bonus. I also made it a point to invest regularly by using tools available in DBS and some stock exchanges to automatically buy the ETFs for me. That keeps my discipline in regular investment.

So, you may ask the important question – how it is doing today?

My index portfolio is running at a 8% loss currently, dragged down by my investments in US and HK ETFs. Not great but better than the losses that I suffered in my equity portfolio – 18%.

However, as per all things, there are pros and cons. There is no “free lunch” in the marketplace. The cons of an index portfolio is that it provides a lower dividend yield than my equity portfolio.

A few reasons for that:

  • It has a sizeable holding of Bonds that have coupon rates that are ~ 2.0 to 3.0 % versus equities that can offer higher yield
  • It hold 5% of Gold which pays no dividend.
  • It has a high % of overseas holdings over SG holdings than my equity portfolio. Overseas ETFs tend to have lower dividend yield.
  • ETF is a basket of stocks and it contains companies that ranges from high to low dividend yields.

The dividend yield of my index portfolio for the last 5 years has been about 2.5%. This is considerably lower than the yield that I received from equity portfolio. I will share more on my dividends in the next post.

Well, as the saying goes “to each his own”, we have to decide for ourselves what investment products suit our investment objectives. It may have lower yield but it comes with lower stress too.

I feel ETFs is a good product to have in your portfolio as it takes away the tension from investing in individual companies. Furthermore, you can start small and buy regularly and not in a lump sum like investing in an individual company. That helps to maintain the discipline of investing regularly and taking advantage of dollar cost averaging if in weak market.

Give it a try if you haven’t.

Good luck.

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