Monday, August 16, 2010

Portfolio Composition Considerations

There are various options for anyone to park some of their excess cash eg fixed deposits, bonds, equities, commodities or property. The typical recommendation is that depending on your risk profile, you should allocate a certain portion to cash, bonds and equities. As for commodities (eg Gold) and property, it will depends on the environmental factors and well as specific individual inclination. Investment in property is by large illiquid and cost prohibitive (especially for your second or third properties).Of course, if you are rich, this is not an issue, but for an average guy like me, it is a problem.

For an average singaporean investor, the options to purchase corporate bonds directly at this stage is quite limited though changes in SGX are on the all next year that may make it easier. I will relook at my bond strategy when this happens. You can look at some bond funds, but I prefer to do it the DIY way as I believe there is no free lunch.

To buffer my porfolio with a bond-like component during the 2008/2009 crisis, I purchase a substantial amount of OCBC and UOB Preference Shares at issue. They are not exactly like bonds, but behave more like bonds than equities. Later on, I purchased some amount of SGX bonds through FundSupermart. With both measures, I have currently about 35% of my portfolio in Pref Shares and SGX bonds. This give me a sense of calm especially the market turned bad eg during the recent PIIGS crisis. Short of OCBC or UOB going belly-up and maybe mayhem in singapore, I think these instruments are relatively safe from day-to-day volatility.

A further 35% of my portfolio is into defensive yield equities eg (SPH, CitySpring, SP Ausnet, SBS, SMRT, STarHub,Singtel, FirstReit, Suntec Reit, Ascendas India, CMPH etc). They give me healthy dividends income but I do not expect significant price appreciation from these counters.

The rest are into bank (DBS), property (Capitaland), Shipping (Cosco), Sembcorp that will do well faster if economy propers but dip faster if condition deteriorate.

I know this is probably not the best allocation but it serves my purpose at this point. I do not set out with this specific objective, but some how along the way, I work things out this way. This is one of the reason that I set up this blog, to create a sharing forum for average investors who want to do it the DIY way.

Right now, my porfolio has one glaring omissions eg small growth stocks. I will share my thoughts about these in another post later.

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