“We should hold onto our investments for the long term to realise their true value.”
The statement above sounds simple, but is a lot harder to do than most investors realise.
Unfortunately, investing is not just about buy and forget.
Businesses are subject to external factors that may weaken or strengthen them over the years.
As investors, we need to put in the effort to nurture our portfolio and monitor it for risks.
If we can do so successfully, then the path to a comfortable, worry-free retirement will be much smoother.
Here are five steps you need to take to ensure that your retirement portfolio stays robust.
1. Monitoring the business
As the internet proliferated around the world, business cycles have become shorter.
Smartphones, which have played a major role in enabling internet connection, have led to changes in the competitive landscape that investors may not have fathomed two decades ago.
Change can bring accelerated growth, but it can also be a double-edged sword.
In a connected world, competition has come from outside the country’s borders, causing business disruption with asset-light business models.
Hence, investors should monitor the businesses they invest in to ensure that the investment thesis remains valid.
A simple review of the quarterly or half-yearly earnings can reassure you that the business is chugging along fine and is not in danger of falling by the wayside.
2. Reviewing long-term prospects
The next step is to assess whether the companies within your portfolio still hold long-term potential.
The aim of every business should be to grow and do better.
If a company starts to falter and cannot get back on its feet, then its prospects may have become much poorer compared to when you first bought it.
Owning companies over years only makes sense if they can grow and compound.
As they become more valuable, their share prices will rise to reflect this.
Businesses that enjoy great long-term growth will almost always pay out rising dividends as well, contributing to a more reliable source of passive income for your retirement.
3. Selling losers
A good analogy for your investment portfolio would be a gardener taking care of an orchard.
For the trees to bear juicy fruit, he would have to regularly pull out the weeds and water the flowers.
The same goes for your investment portfolio.
Businesses that fail to deliver should be divested, and the money redeployed to a more promising candidate.
If done consistently, you will end up with a portfolio of great companies that can continue to build wealth.
The alternative is to end up with a portfolio of deadbeat businesses that lock up your capital but produce neither capital appreciation nor income.
4. Buying more dividend stocks
Another way to boost your retirement is to increase your passive income stream.
Take the opportunity now to accumulate shares of stable, dividend-paying companies while you are still actively drawing a salary.
Some of these may include blue-chip names such as DBS Group (SGX: D05) or Singapore Exchange Limited (SGX: S68).
Other sources of dependable dividends include REITs such as Mapletree Industrial Trust (SGX: ME8U) and CapitaLand Integrated Commercial Trust (SGX: C38U).
By increasing your stakes in such businesses, you are also actively increasing your retirement passive income flow.
What’s more, these promising dividend stocks may also steadily increase their payouts over time, thus providing a double bonus for the savvy investor.
5. Injecting an element of growth
Finally, the last step you can take is to reserve a portion of your portfolio for growth.
By latching on to companies at the forefront of their respective industries, you can ride along with them to enjoy faster growth for your portfolio.
Companies such as payments provider PayPal (NASDAQ: PYPL), software-as-a-service e-signature company DocuSign (NASDAQ: DOCU) and coffee chain Starbucks (NASDAQ: SBUX) are all enjoying solid growth despite the pandemic.
Although dividends should form an integral part of a retirement portfolio, there’s no harm in allocating some money to growth as well.
The inclusion of growth stocks can help your overall portfolio to chalk up a better total return than just purely owning dividend stocks alone.
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Disclaimer: Royston Yang owns shares of DBS Group, Singapore Exchange Limited, PayPal and Starbucks.