Posts Tagged ‘dividends’

Investment strategy pays dividends

Friday, December 4th, 2009

Basically, Mr Ng was 31 when he ‘set his plan in motion’. Initially he was invested in unit trusts. But he had read Robert Kiyosaki’s ‘Rich Dad Poor Dad‘ before, and decided to sell off his unit trusts and in 3 years, manage to acquire enough dividend paying stocks to meet his monthly expenses.

This is what I’m kinda aiming for, though in my case, it’s our monthly mortgages that I wish to cover, because I’m investing with CPF funds. Currently payout from our investments can only cover half the monthly mortgage. Better than nothing I guess.

Imagine though, when it does cover all our mortgage, it’s like getting an already overpriced HDB for just a fraction of it’s cost!

Imagine having a payout from your investments that more than covers your monthly expenses.

Canny investor Ng Wai Chung is in this happy position at the age of 34.

Mr Ng, a senior IT manager – and an author of investment books – achieved this a year ago. But rather than retire, he stays in full-time employment.

His investment income stream is the result of a plan he set in motion three years ago. That was when he decided to sell his investments in unit trusts and buy stocks that pay high dividends.

‘Today, I am able to yield about $24,000 a year on my investment portfolio, enough to cover my expenses in most months,” he said.

This enviable portfolio consists of real estate investment trusts (Reits) and shares that yield high dividends, such as mainboard-listed Singapore Press Holdings (SPH). Dividends are the portions of profits which a company distributes to shareholders.


Investment thoughts

Friday, January 30th, 2009

I’m still learning the best ways to grow my money. As of now, I only invest in stocks that gives me dividends, and I’m saving towards getting real estate. I didn’t always invest that way though.

In March 2007, I ‘purchased’ 2 investment plans via AIA. One was a lump sum payment, while the other was a regular savings plan of $150/mth. The lump sum investment was made, because I didn’t want my money to be locked up in CPF once the ‘no investment on first $20k CPF rule‘ kicked in, while the $150/mth plan was because financial advisors have always been preaching about dollar-averaging over the long term. Here’s how it has fared as of today:

AIA IGP Plus (lumpsum) is in the red: -38.6%
AIA Achiver (RSP) is also in the red: -32.9%

So I guess it is true that dollar-averaging fare better than lump sum investments.

A year later, in March 2008, somehow I got involved with another fund, this time with Prudential SuperSaver Account. While markets had soften then, nobody knew that there would be a market crash in October 2008. As of today, that too is in the red at a -36.7% loss.

Now note that these are all paper loss. I haven’t really loss anything unless I sell it now. In 10 years time, I’m sure all these will no longer be in the red, but I’m skeptical about what the actual annual returns would really look like. Would it beat CPF’s interest rate of 2.5%?

From April 2008, I slowly started entering the stock market. This time round, my focus was on purchasing stocks that would give me cash, no matter whether it’s market value was up or down. This is known as ‘dividends’. Basically, companies share some of their profits with their shareholders.

Has the economic crisis affected the value of my stocks? Yes of course. As of today, I’m actually sitting on a paper loss of -41.8%. However, that really doesn’t concern me anymore. I acquired these stocks mainly because of the passive income they can give me year after year. Currently, my stocks pay out a combined dividend payment of 18.98% per annum.

Essentially what this means is that in slightly over 5 years, I would have gotten back my capital purely through dividend payouts alone. And I would continue getting dividend payouts as long as I hold on to those shares. Any dividends received after that is essentially ‘free money’, since my capital is already back in my pocket, and should I sell my shares after, the amount I get back is pure profit.

In 5 years time, if the market has recovered, and I decide to sell my AIA and Prudential funds, maybe I would have just broken even (though in reality it’s really a loss as I could have earned 2.5% pa if I had left my money in CPF).

I hope to go one step up and leverage on real estate in 2-3 years time, with the same concept of getting positive passive cash flow each month.

It’s the year of the cow, and this year, I’m planning to find more ‘milk cows’ for continuous supply of milk!

Happy ? year!