2024 has arrived and you may be tempted to make several resolutions to kick-start the New Year.
When it comes to investment resolutions, an important one may be to construct a robust portfolio that can weather different market and economic cycles.
With the volatility roiling stock markets in the last several years, it is not surprising to wish for an all-season portfolio that allows you to enjoy a good night’s sleep.
But, how should you go about building such a portfolio?
At first glance, it may sound tough.
Here are four easy steps you can adopt to construct your portfolio to make it not just resilient, but also allow it to grow to prepare yourself for a happy retirement.
Step 1: Read up and learn
First and foremost, you should begin your investment journey by reading up and understanding more about investing.
We have a useful beginner’s guide that can get you quickly up to speed.
You should obtain a basic understanding of investing and what it can help you achieve.
At the same time, you should also be aware of the risks associated with investing.
With hard-earned money at stake, you will experience a roller-coaster of emotions which you should be prepared for.
Armed with this knowledge, you are now ready to venture into the stock market to construct your portfolio.
Step 2: A solid blue-chip foundation
The first step is to include solid blue-chip companies as the foundational layer of your portfolio.
Blue chips are so named because they possess a long track record of performance and have weathered through numerous economic cycles.
Some examples are Singapore’s largest bank, DBS Group (SGX: D05) as well as stock exchange operator Singapore Exchange Limited (SGX: S68).
These blue chips serve as a cushion for your portfolio and allow you to enjoy a good night’s sleep.
Most blue-chip stocks also pay out a consistent dividend that can help you generate a useful source of passive income.
By laying this foundation, you can then continue to build up successive layers for dividends and growth.
Step 3: Dividend-paying stocks as a second layer
Armed with a robust foundation, you can then add a second layer of dividend-paying stocks that can assure you of a steady passive income stream.
Look out for stocks that have a long track record of consistent dividend payments.
Such businesses will have strong balance sheets and generate copious amounts of free cash flow.
Examples of sturdy dividend-paying stocks include Boustead Singapore (SGX: F9D) and Haw Par Corporation (SGX: H02).
REITs are another asset class that is well-known for their dividend consistency.
The requirement to pay out at least 90% of their earnings as distributions makes them perfect as income instruments.
Most REITs pay out distributions half-yearly while some, such as Mapletree Logistics Trust (SGX: M44U), pay quarterly dividends.
Remember to look for REITs with strong sponsors and high-quality portfolios to give you peace of mind and income certainty.
Step 4: Sprinkling some growth on top
With blue chips as the base layer and dividend-paying stocks as a second layer, your portfolio is now strong enough to withstand most economic crises.
However, it is important to also invest in growth and not just stability and dividends.
This is where you should sprinkle on some growth stocks to help the portfolio to achieve a better return.
However, you can keep the proportion of growth stocks smaller than that of the blue chips and dividend stocks to reduce the overall risks within the portfolio.
You can tap into the US market to select promising growth stocks in the software-as-a-service sector or perhaps the consumer sector.
Another option is for you to consider growth stocks listed in Singapore such as iFAST Corporation Limited (SGX: AIY).
As the business grows, these stocks should see their share prices rise in tandem and provide you with capital appreciation to grow your portfolio over time.
You should choose stocks that you understand well and feel comfortable with to enjoy this long-term capital appreciation.
Get Smart: Simpler than it looks
So, there you have it.
The above are four simple steps on how you can construct a portfolio you can be proud of.
It takes time and patience and you will need to have some spare cash.
But if done right, you can see your wealth growing steadily while also enjoying a flow of dividend income that goes straight into your bank account.
First-time investors: We’ve finally released our beginner’s guide to investing. Read it in an afternoon, follow the principles, pick an investing style and buy your first SGX stocks within the next few hours! Click here to download it for free.
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Disclosure: Royston Yang owns shares of DBS Group, iFAST Corporation Limited, Singapore Exchange Limited and Boustead Singapore.
