Finance 101: What is a portfolio?

Hi friends, 

I bet that you have heard of it before. "I have a portfolio of blah blah blah", or "How big is your portfolio?" So... What is this "portfolio" that everyone who is investing/ planning their finances is talking about? Today I shall be tackling this question:

Definition:
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly tradable securities, like real estate, art, and private investments. - Investopedia

A portfolio refers to a collection of investments or financial assets held by an individual, investment company, financial institution or hedge fund. This grouping of financial assets can include everything from gold and property to stocks, bonds, and cash equivalents. In essence, an investment portfolio acts as a big briefcase-carrying all of these financial assets. - Capital

These are the essential points.

1. Group of financial assets (Financial instruments that can be anything that we discussed and more, like real estates, arts, whiskey, etc)

2. Held by an individual, company, funds. 

For today, we will be talking about your individual portfolio. As per the definition, your portfolio is a combination of the different financial instruments that you are holding. A portfolio is also something that you should build based on your preferences. It should be in line with your investment beliefs and your risk appetite

Here are some of the things you should consider before setting off to build your portfolio:

1. What is your risk tolerance? 

How much gain/loss are you able to tolerate? Are you ok with a portfolio that can give you large returns and losses?

2. What is your time horizon?

A longer time horizon would mean that you can create a portfolio that has a higher potential for appreciations. 

3. What assets are you comfortable/ familiar with?

If you are competent and have a lot of experience with a particular financial instrument, you can consider having more of your portfolio allocation to the instrument that you are familiar with. 

Here are some of the financial instruments that you can have in your portfolio. We have actually gone through the majority of them in the other Finance 101 articles:

1. Stocks, etfs, mutual funds, index funds, Reits 

2. Bonds, bond funds

3. Gold, precious metals

4. Crypto (Bitcoin, ethereum)

5. Real estates 

6. Other financial instruments like alcohol, art, etc

7. Commodities like copper, steel, oil

8. Insurance

As we are talking about the personal portfolio, in which I would assume that you do not have the need to invest in commodities, alcohol, art etc. We will focus on 1,2,3,4,5,8 I will analyse it from the POV of a) Aggressive investors (with a long time horizon) b) Conservative investor (with a shorter time horizon) c) Investor who is looking to pass intergenerational wealth d) ultra-aggressive investor

Do note that the allocations are just for example. You should do your own research. 

a) Aggressive Investor (For those who wants :

1. Stocks (85% in etf, individual stocks)

2. Bonds (0%)

3. Precious metals (4% in gold)

4. Crypto (1%, treat it as a gamble)
5. Real Estates (5%)

8. Insurance (5%, to protect against sudden events)

b) Conservative Investor (For those who wants to have some returns but cannot take too many losses)

1. Stocks (20% in etfs, and reits etfs)

2. bonds (60% in bond funds)

3. Precious metals (5% in gold)

4. Crypto (0%)

5. Real Estates (5%)

8. Insurance (10%)

c) Generational Wealth Investors (For those who wishes to pass to their offsprings without incurring taxes)

We do not have inheritance tax in Singapore. But do know that if you pass on properties, your offsprings might need to pay property taxes on it, or pay for the maintenance fees. 

Hence, you might want to consider holding on to stocks and bonds. 

d) Ultra-aggressive Investors (me, with about 30-40 years of investing)

1. Stocks (95% in etf, individual stocks/ reits)

2. Bonds (0%)

3. Precious metals (0%)

4. Crypto (0%)
5. Real Estates (0%)

8. Insurance (5%, to protect against sudden events)

I will reiterate this again. Your portfolio would be reflective of your investment beliefs. Your portfolio should be tailored to your needs. Of course, with a portfolio, you should always look at it every now and then to rebalance it. The rebalancing would allow your portfolio realigned with your chosen allocations. This rebalancing should be around once per 3 months. 

As always, do take note that the allocations are just examples, you should always do your own research before making any financial decisions. 

Also, now that we have settled a majority of the financial instruments, I will be moving on to the most famous financial portfolios that are held by famous investors like Warren Buffett, Ray Dalios, etc. It will be named "Finance 201". I am an Engineer for goodness sake. How creative do you think I am :')  Don't worry. Finance 101 series will still run on, just keep sending in request so that I know to explain some of the basic terms that I have used in my posts

With that, 

I end today's topic

Stay vested, Stay frugal my friends,

Dionysius

Sources:
https://capital.com/portfolio-definition
https://www.investopedia.com/terms/p/portfolio.asp

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Finance 101: What is a stock?

Hi friends, 

Today I will be talking about stocks. No. Not chicken stocks. I'm talking about owning a portion of a company that you believe will do well over time. That portion would be called a stock/share.

By definition:
A stock (also known as "shares" or "equity") is a type of security that signifies proportionate ownership in the issuing corporation. This entitles the stockholder to that proportion of the corporation's assets and earnings. - Investopedia 

A stock is a type of investment that represents an ownership share in a company. Investors buy stocks that they think will go up in value over time. - Nerdwallet

As we can see from the definitions, the keywords are:
1. Ownership
2. Go up in value over time
3. Entitles the stockholder to ... asset and earnings

So.... what is a stock? Let me illustrate this with an example: 
I have an awesome business plan, but I do not have the capital to start it. I have $5,000 in my own savings and I raised money from my friends and family to have $10,000 in total. My friends and family would have a 50% share of this company. 

This is similar to a company, where the company would try to raise money by distributing shares to the public/ financial institutions. Owning some of these shares would make you a shareholder of the company. In times where the company makes a profit, there can be dividends distributed to the shareholders or it can be reinvested for future earnings.

Here are some of the different types of stocks, I will sort them out in terms of growth out of 5 Midas' touches. The categories are price, growth, dividends, earnings, stability:

1. Blue chips (Price - 5/5, Growth - 4/5, Dividends - 4/5, Earnings - 4/5, Stability 5/5)

They are the leaders in their industries, they have strong-ish growth potential and they are expensive to own as well. They are suitable for investors that have the capital to buy their stocks, aiming for stable dividends and want some growth (not as much as growth stocks as they are already the largest in their industries). Examples are Coca-cola, Disney, Intel, Microsoft. In a Singaporean context, it would be DBS, UOB, OCBC, Hong Kong Land holdings, Capitalands, Dairy Farm

2. Growth (Price - 2/5, Growth - 5/5, Dividends - 1/5, Earnings - 4/5, Stability 3/5)

These are companies that are expected to grow in prices. These companies may have a higher profit margins, higher year-on-year (YOY) growth or higher growth percentage compare to their peer. As they would be focused on growing their business, and like-wise, share prices, you should not expect dividends from growth companies and should expect more volatility. Examples are: Amazon, Facebook, Qualcomm (You can expect a lot of tech stocks)

3. Income (Price - 3/5, Growth - 2/5, Dividends - 5/5, Earnings - 4/5, Stability 5/5)

These are the companies with strong and stable income sheet. They are companies that have quite a bit of earning every year but might not have opportunities to invest these earnings for future growth. Hence, they would distribute these earnings as dividends to their investors and they would have a higher dividend yield compared to their peers. Some of these companies can be found on the S&P 500 Dividend Aristocrats Index - Companies with a track record of increasing dividends for at least 25 years. Examples are 3M, Caterpillar, Oracle etc. 

4. Value (Price - 3/5, Growth - 4/5, Dividends - 5/5, Earnings - 4/5, Stability 5/5)

Have you heard of value investing? It means to find stocks that are currently trading at a price lower than the value that you perceive it to be. Your perceived value can be influenced by the management of the company, the brand power, the cash flow and so on. This is made famous by the Oracle of Ohama - Warren Buffett. 

5. Penny (Price - 1/5, Growth - ?/5, Dividends - ?/5, Earnings - ?/5, Stability 1/5)

Have you watched "The Wolf of Wall Street" starring Leonardo DiCaprio? The movie was portraying Jordan Belfort, who was a former stock broker that sold penny stocks to people. Penny Stocks are low-priced and speculative in nature. Many stock exchanges would not allow them to be traded. These are meant for investors that seek a rapid growth by buying into their stocks. HOWEVER, because they are speculative in nature, and their value might not be based on tangible assets, I would not recommend anyone without deep financial understanding to invest in them. 

My personal portfolio:
I have not bought into any individual stocks as I do not have enough capital to buy into stocks while ensuring sufficient diversification. Hence, I will be sticking to ETFs at the moment. I do have a few stocks that I am looking out for. But as I cannot disclose them as I am not qualified to make any recommendations to anyone. 

With that,
I end the second of this new series.

Stay vested, Stay frugal my friends,
Dionysius

Sources
https://www.nerdwallet.com/blog/investing/what-is-a-stock/
https://www.investopedia.com/terms/s/stock.asp
https://www.cashay.com/types-of-stock-blue-chip-penny-growth-income-value-153353359.html
https://www.drwealth.com/blue-chip-stocks/

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