Wednesday, 1 June 2016

Monthly dividend income hits S$1,000

Once in a while, I write these numerical milestone posts to celebrate certain achievements with our asset portfolio and passive income. It's a long and tough journey to financial independence and these results keep us motivated to keep going.

Previously, I wrote in April 2016 about our monthly passive income exceeding S$1,000. This takes into account the monthly dividend and interest income that we receive. For May 2016, our monthly dividend income has exceed S$1,000.
We only started to aggressively build our Share portfolio in late 2015 & early 2016 and most of the holdings pay their dividends in May 2016. It made sense for May 2016 to be our first big month for dividends but I wasn't expecting it to hit S$1,000 so soon. Anyway, we have not re-invested these dividends yet due to the recent rallies in the global stock markets.

The more volatile the equity markets, the more closely we stick to our dollar cost averaging investing strategy. In any case, it is difficult to be successful at market timing over the long run. How would you know whether this is a good or bad time to invest if you have no way of knowing what the future holds.

Positioning of Asset Portfolio

Going forward, this is how we have positioned ourselves. We have a sizeable ETF & Share portfolio that generates dividend income and the amount varies according to the state of the global economy. Recently, there has been dividend cuts for a number of our holdings but we have made up for it by taking advantage of price weaknesses to accumulate more ETFs and shares. We always keep ourselves vested in the stock markets no matter what the state of the global economy is.

The investment cash & bonds components of the Other portfolio and remaining cash on hand generates interest income, the amount of which has been greater than our dividend income so far for 2016. The wholesale life policies and retirement funds (CPF and Superannuation) do not generate income that we can use now but their values grow slowly over time with regular contributions regardless of market performance.

It's good to know we still have the CPF and Superannuation for retirement if our investing strategies blow up in our face. This is the main reason why we don't really invest our retirement funds in equities and keep them separate from everything else.

Scenario Analysis

If the global economy enters into a severe recession with stock markets tanking, we would re-direct a significant amount of the investment cash and remaining cash on hand into equities. The short-term performance of our ETF & Share portfolio would take a hammering and we are not going to like it. However, the subsequent market recovery will accelerate the portfolio growth if we can hang in there and not give up.

If the global economy stagnates and stock markets track sideways, we will continue with our normal drawdown of investment cash and dollar cost average into equities. This scenario does nothing for our mental state and we end up waiting for something to happen most of the time.

If the global economy booms with stock markets going into bull runs, we will slow our drawdown of investment cash and let the cash holdings generate more interest income. Since we not planning to withdraw from our ETF & Share portfolio anytime soon, it would be nice to see the value increase but this has little long-term impact other than making us feel good.

There you have it - our strategies for the 3 possible scenarios. Writing them out is the easy bit. It's implementing them that takes a lot of self-belief and discipline. During the most recent bear market in early 2016, I felt fearful and terrible when purchasing more ETFs and shares. It's hard for any external positive reinforcement when you are surrounded by all the doom and gloom. And the severity was no where near the Global Financial Crisis in 2007/2008.

In times like this, there is only internal positive reinforcement and faith in the strategy you are undertaking. I'm sure such a time will come again and I can only hope I use it for wealth building and not wealth destruction. 

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