Investment Concept and Strategy

Investment Concept and Strategy

The main focus wasn't on capital growth but on supplementary income. Final objective of this strategy is to achieve a dividend income of at least 36400 per annum by the age of 55-60.

Reason being that 55 years of age is when the CPF-RA is created and CPF funds are kept aside for retirement (CPF Life).

2 modes of Investment

• Cash

The bank interest rates fail to satisfy my investment needs to fund my retirement.

(1.30% fixed deposit, 2-3% for bonds)

Therefore, I chose to invest my cash in equities, ETFs, mutual fund and gold.

• CPF-IS (OA)

2.5% in the OA is not adequate to combat inflation. Rather than transferring to the Special Account (SA) to earn 4% interest, I chose to invest the OA savings for sustainable income, keeping the base figure of 60,000 of combined CPF balance (capped at 20,000 for OA) for added 1% interest.

I disliked the way the interest is calculated by CPF (interest computed monthly and credited yearly)

Best part of CPF investments is that the money used for investment is not subject to incur accrued interest unlike a property loan using CPF. Furthermore, upon reaching the age of 55 and having set aside the appropriate Retirement Sum (BRS/FRS) to be transferred to the Retirement Account (RA), these investments can be applied to be transferred to your Central Depository (CDP) securities account.

Maximize the Power of Compounding Returns

There are 2 parts to this strategy.

• Invest Much

As much as 20-30% of my salary goes into feeding this monster.

• Re-Invest Often

I tend to look at the distribution frequency of each asset to enhance the frequency of dividend reinvestment. Basically, it would be best if I am paid a dividend every month from my investments.

Dividend Yield and Consistency

Anything above 3.5-4% yield is considered average. Consistency is one of the key matrix to determine if the distribution income is sustainable in the long term. Some funds tend to disburse distribution payouts from its own capital. These are pitfalls to look out for.

Special Purpose Investments

At times, I may spot some gems which could potentially offer capital appreciation. Only a small percentage goes there to limit my exposure. Such capital employed in this instance is derived only after the base investment strategy has been fulfilled.

My small portfolio at a glance

Total dividends received in 2021: $3707.05; equivalent to about $10.18 a day of dividend income

All of which have been reinvested.