Dear Smart Investor,
If you ever wanted to understand the impact of inflation, I have got a story for you.
A while ago, I found myself in the same lift as two trolley-trotting aunties headed for the nearby wet market. Being in the same space, I couldn’t help but to overhear their chit-chat as the lift headed down.
With a sigh, one aunty shared a simple observation with the other:
“S$50 used to last me a week. Now, it’s gone in three to four days.”
Her statement was profound in its simplicity.
In a few words, the lamenting aunty summarised the impact of the time value of money that we all feel in our daily lives.
Our money today is worth less than money we had in the past.
The tyranny of shrinking money
According to the Monetary Authority of Singapore (MAS), the headline inflation rate for 2021 is expected to be 2.3%.
Inflation is expressed in a single figure but each of us experiences its impact differently.
For instance, a rise in petrol prices is likely to impact a car owner more than a rider of public transport.
Similarly, an existing homeowner might not feel the pinch of rising house prices. But for a young couple who is starting out today, the higher cost of a home can have an immense impact on their future finances.
Given our unique circumstances, it follows that each of us has our own financial considerations for what we want to achieve.
Your personal plan for 2022
At The Smart Investor, we believe that dividend investing can help to defray the effect of inflation.
What’s more, it can be customised to meet your unique circumstances.
For instance, at our services that focus on dividends, The Smart Dividend Portfolio and David Kuo’s Income Portfolios, we segment our stocks into three main categories: income, growth, and speculative.
Stocks in the income segment form the underlying foundation of the portfolio, representing the most reliable dividend payers we can find.
A dependable source of dividends is the key here – we are not expecting enormous growth out of this segment.
The role of the growth segment, on the other hand, is to provide a boost to the dividends we receive. This growth layer sits on top of the income segment.
Stocks in the growth category should have a long runway that will enable them to increase their revenue and profits, and subsequently, their dividends as they grow.
Finally, the speculative segment, as its name suggests, is for stocks that are less certain but offer a nice potential upside.
The lack of certainty dictates that we should hold on to this set of stocks with a tighter leash. We should be strict with our allocation here.
We wouldn’t want this segment to grow any larger than the growth or income segments.
Building your own dividend paying money machine
For us, investing is about achieving your goals and not someone else’s.
The three segments above offer you the flexibility to put together your own portfolio to suit your own needs.
For instance, if your goal is to protect your wealth, then growth may not be a priority.
Based on that, a portfolio that is heavier on the income segment (say 80%), and lighter on the growth segment (say 20%), could be a good fit for your needs.
Meanwhile, there will be a group of you that is just starting out.
If so, building a growing stream of income that can eventually cover your monthly expenses would be a worthy goal.
In this instance, keeping the income segment at 50%, dialling up the growth portion to 40%, while maintaining the speculative segment at 10% could be the formula that might work for you.
Get Smart: Getting started
So there you have it, a simple but effective game plan to put your money to work.
The next step, of course, is to get started on investing.
Unfortunately, inflation waits for no one and is here to stay.
As such, the earlier you get started, the sooner you can start receiving dividends into your bank account to defray some of these rising costs.
At The Smart Investor, we help you find companies that fit the profile of an income, growth and speculative portfolio. We also build a portfolio in full view of our members to demonstrate how our investment philosophy works.
Just as you can’t learn to ride a bicycle by reading a book, we believe that investing is best learnt through practical application.
For us, there is no bigger endorsement than proving that our methods work in practice.
Looking for investment opportunities in 2022 and beyond? In our latest special FREE report “Top 9 Dividend Stocks for 2022”, we’re revealing 3 groups of stocks that are set to deliver mouth-watering dividends in the coming year.
Our safe-harbour stocks are a set of blue-chip companies that have been able to hold their own and deliver steady dividends. Growth accelerators stocks are enterprising businesses poised to continue their growth. And finally, the pandemic surprises are the unexpected winners of the pandemic.
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Disclaimer: Chin Hui Leong does not own any of the companies mentioned.
