Index Portfolio Delivering its Value

Some of you who have started following my blog earlier may remember that I have an Index Portfolio (modeled after a permanent portfolio concept) alongside my Growth/Income Portfolio. It has been a long time since I last spoke about it, so I thought I will do it today.

While I was actively managing (aka trading) my growth/income portfolio, I have not neglected my index portfolio. In fact, as of today, the value of my index portfolio has doubled (+100%) in value mainly through capital injection from monthly purchases of ETFs on SGX and little selling in between. Over the same period, my income/growth portfolio has only grown 9%. Hence, index portfolio has grown to play a more significant role in my overall investment Strategy now than before. It holds about 18% of my total investment capital.

In terms of performance, I mentioned that I am currently losing -6% in value (including dividends, current price – cost of investment) from my growth/income portfolio while guess what, for my index portfolio, it is still holding its head slightly above water at +0.35% (same basis). In some way, I think the index portfolio is delivering its value to me, at the very least I am not losing money from it now.

I attribute it to a few factors:

(1) The index portfolio has a mixed of bond, equities, gold and Reits in a particular ratio. My target ratios are 35%:35%:5%:25%. Bonds, Gold and Reits (in a lesser way) have been relatively resilient compared to Equities in this current downturn. My growth/income portfolio is made up of roughly 60% equities, 30% Reits and 10% corporate bonds. Therefore, equities drives the performance. Therefore, the index portfolio does not have the same volatility and its value did not decline as much.

(2) I invest in it monthly via POSB invest and other regular purchase schemes. It eliminates the “gaming” mindset and instills a regular investment approach regardless of whether the market is good or not. I buy with a same amount of money each month and hence, when the market is down, the same amount of money will buy more units.

(3) I buy and hold. While I still cherish the thrill of trading, I am believing more in buying regularly and holding and best of all, buy in crisis and hold. Hence, when the market had big swings in the last few months, I went in to buy more equities and Reits ETFs and hold them.

(4) I buy only ETFs and unit trusts which are a basket of companies. The risk is already diversified in itself. The volatility in the ETF/Unit Trust will not be as big as a single company … take for example AsianPayTV’s jaw dropping 50% drop in one day, suspension of Hyflux overnight etc.

But as all things, there is a price to pay.

In a declining market, the index portfolio will outperform but when the market is rising, I will expect it to under-perform against my growth/income portfolio.

However, if I go back to the first reason why I set up the index portfolio, it was to reduce risk and volatility of my investment portfolio and I think I have achieved.

It delivered its value and hence, I will continue to grow it. I can envisage one day that my index portfolio will be bigger than my growth/income portfolio.

If you are keen to know more about my index portfolio, you can search for them in my previous blogs. Else, just drop me a line.

Have a great weekend folks.

Take care, regards,

Warriortan

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