Investing is more like a marathon than a sprint.
Picture it as a journey where your starting point doesn’t necessarily match your destination when you retire. This natural shift occurs as your priorities and life circumstances change over the years.
Remember the first time you dipped your toes into the stock market? I sure do.
Back then, I was all about high-growth potential companies. It makes sense when you’re young – you’ve got time on your side, so why not aim for businesses with the greatest potential to grow your money?
My portfolio today looks a lot different from back then. And this is completely normal.
Let me explain why.
As we grow and age, our priorities and life circumstances change over the years.
For example, an investment portfolio can slowly morph from a more growth-oriented one to that of a dividend-paying one as you age.
When I first started investing in the Singapore stock market, I picked a bunch of Singapore growth stocks that sounded promising to me.
They were in industries such as oil and gas, construction, and fishing.
Some of the names I invested in were Ezra, Swiber, Tat Hong, and China Fishery.
But I made a big mistake.
I didn’t pay attention to the financial health of these companies. I ignored the fact that they had high debt levels and low free cash flow. I was too focused on their growth prospects, and didn’t consider the risks involved.
For the record, Ezra, China Fishery and Swiber all went bankrupt.
I was lucky to have sold before the businesses were wound up.
Tat Hong, on the other hand, was taken private at just S$0.55 after hitting an all-time high of S$3.40 back in 2007.
Life moved on, and so did my investment strategy. As my family grew, so did my need for additional passive income.
My investment strategy evolved to include names that both displayed growth and paid out a dividend.
I started to add REITs into my portfolio, beginning with Frasers Logistics & Commercial Trust (SGX: BUOU) and then Keppel DC REIT (SGX: AJBU).
Meanwhile, solid dividend-paying names such as Boustead Singapore Limited (SGX: F9D) and VICOM Limited (SGX: WJP) were retained to pursue this purpose.
Over time, my portfolio’s focus shifted from growth to a mix of growth and income. How my portfolio evolved over the years as my needs change through my life is something that happens to many investors too.
As you grow older and require higher levels of passive income, you can start to shift more of your capital towards dividend stalwarts and REITs.
However, it is important to remember that portfolio changes should be a slow evolution rather than involve a stomach-churning “revolution”.
Learning from mistakes
Another reason to evolve your portfolio is when mistakes are encountered during your journey.
No one’s perfect, and errors are part of the journey.
I learnt my lessons too.
I learnt to avoid heavily leveraged companies and focus on those with consistent positive free cash flow.
By learning from your missteps, you can sell underperforming stocks and accumulate stronger ones, gradually improving the quality and resilience of your portfolio.
Making tweaks along the way
Consider your portfolio as a garden that needs regular maintenance.
Trim the weeds, water the flowers. Regular adjustments help eliminate the lemons and retain the stronger businesses.
A complete overhaul isn’t recommended – it’s like starting from scratch.
Making adjustments along the way helps you to maintain the quality of the stocks inside your portfolio and ensure that you steer it towards the goals that you set for yourself.
Dare to make changes
If all these changes sound scary, you are not alone.
I had a fair bit of trepidation too when making changes to my portfolio back then.
The fear stems from uncertainty – are you heading in the right direction, or are you setting yourself up for another mistake?
These worries are natural.
By undertaking robust research on the stocks you wish to invest in, coupled with lessons learned from mistakes, you can make a confident decision to improve your portfolio.
Investing itself should be viewed as an ongoing learning process.
As you make constant improvements to your portfolio, you’ll eventually build the dream portfolio that ensures sufficient wealth and passive income for your golden years.
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Disclosure: Royston Yang owns shares of Frasers Logistics & Commercial Trust, Keppel DC REIT, Boustead Singapore Limited, and VICOM Limited.