Friday, July 15, 2016

Growing my investment portfolio

There are only two ways in which my portfolio can grow without leverage - the first is to inject it with fresh capital, and the second is to grow it organically from dividends/capital appreciation.

To grow it by injecting fresh capital, it will have to come from savings. And where do savings come from? From work. After subtracting all the necessary deductions, I'm left with 30k to inject into my warchest every year. When my portfolio is small, say about 100k, this addition of 30k per year into my portfolio will increase it by 30%, which is way more than what I think I can grow my portfolio organically. As my portfolio grows bigger in size, there will come a time when the addition of 30k per year will not be significant. 500k portfolio with 30k injection is 6% while a 800k portfolio with 30k injection is just 3.75%.

That's the effect of having a bigger base.




I suppose if I can grow my portfolio at 5% per year, my portfolio has to be more than 600k in order for the addition of 30k fresh capital to be 'insignificant' compared to the portfolio's organic growth. It's a little bit more complicated than that, I know. The fresh capital of 30k that is pumped into the portfolio will generate more dividends, that will result in more savings and thus having more fresh capital to be pumped into it. Let's ignore that fact for now and keep things simple. Whatever extra compounding will offset any losses that will come from time to time in the stock market.

I've a warchest plus portfolio size of 200k right now. To reach 600k with injection of 30k per year, I'll need 14 years to do so. This also means that in the next 14 years or so, it's more important to focus on my job and make sure I can continue to contribute 30k into my portfolio, rather than to depend on my portfolio for organic growth. Eventually, when the size of the portfolio increases to such an extent that the annual 30k increment is no longer significant, then I'll have to be a lot better in my portfolio growth. It's not that I have to choose one or the other, but it's good to know what will contribute to a greater extent to my portfolio growth so that I know what is the most effective way to grow it.

The conclusion is that it's still important to work and earn and save to grow your portfolio. To do that, you need to study to get yourself the required certification to earn a good pay for the greater part of your life, while learning to improve your skills in growing your portfolio that will only kick in towards the later part of your life. Whoever thinks he can skip school and start making big bucks in the stock market when they haven't even stepped into the working world is either delusional or privileged.

I hope it's the latter.

17 comments :

Createwealth8888 said...

Exactly, what most of us should be doing when we are starting out investing. Focus on our earning to enlarge our account size instead of shouting in the cyber world of passive income. What dividend XXX title?

la papillion said...

Hi bro8888,

Ultimately, it still boils down to that first pot of money. You either inherit it (through birth or marriage), or you have to work hard to get it. No other way around this.

Singapore Man of Leisure said...

LP,

There is Toto. Hope springs eternal!


Jokes aside, to retire rich and young by 35, the most usual route is working at a startup - and selling your stock options during the company's IPO; or starting your own business.

Hence you see quite a few in our community becoming entrepreneurs in the BUSINESS of selling financial freedom dreams.

Come to think of it, not much different from selling Toto - the majority fund the dreams of the few...


la papillion said...

Hi SMOL,

You're right, it's selling dream to the masses. I think it's safer to find a job that you find meaningful and contribute while working towards your retirement. There must be life right now rather than life only after retirement.

yeh said...

hi 大叔

i always think that one way to get rich is to strike toto. so now i also do invest little money in toto. hahahaha

la papillion said...

Hi Yeh,

Wah, which of us are you calling 大叔? I think none is applicable! 大爷 maybe lol!

Sillyinvestor said...

Yeh! LP very young lei... Why u call him 大叔muahahahah, u writing too much to CW Liao

It was a equation I forgot about even when I am building it until recently ...

I think most people know the importance of 2 wings ... But they believe their work and first wing is strong and it's fully growth ... Also blogging about the second wing is more sexy that blogging about work.

I made 5k trading in a month ... Wow!!!

I made 8 k working !! WTF I also what ...

Bragging the first one more shiok right

la papillion said...

Hi SI,

Yeh is talking to SMOL I believe, hehe

Btw, yeh is officially a bullythebear cbox member. Can always find her around there mingling with the crowd lol

To be honest, I'll rather earn 5k working than 8k trading. I've never heard of anyone losing money by working, so the money is more guaranteed than trading. As for trading, the 8k you get this month might be gone, and paid with interest the next month. Nothing is for sure lol

Singapore Man of Leisure said...

1) LP,

Yeah, thanks!

%$##%&()*%@!!#$%


But then, some K-pop dramas got show young meh meh falling for 大叔 OK?

LOL!



2) Yeh,

$2 Toto quickpick is not too much to ask.

If Lady Luck wants to find us, we must do our part mah!

:)

Rolf Suey said...

Hi LP,

U can asked how others have so big a portfolio despite their younger age. And also most never ever blogged about where their initial base comes from.

Anyway, my ex-boss (smaller shareholder) told me that his son told him that he will be rich in investing. He is working in a fund also.
Although my ex boss is skeptical base on his own experience, he still believe in the son bcos of the love.

He is going to pump in 100-200k for a start for him to grow his portfolio. This is peanut to him.

I asked him why he does that bcos it's then no good for the son since he will never bcos from day one, it's not something he build himself.

This is love isn't it?

i envy the love the guy receive from the parents rather than al the crap about existing "big" portfolio!
the most impt experience of building from scratch is already missing leh!!!

SMK said...

nice self awareness.

"I've a warchest plus portfolio size of 200k right now. To reach 600k with injection of 30k per year, I'll need 14 years to do so. This also means that in the next 14 years or so, it's more important to focus on my job and make sure I can continue to contribute 30k into my portfolio, rather than to depend on my portfolio for organic growth. Eventually, when the size of the portfolio increases to such an extent that the annual 30k increment is no longer significant, then I'll have to be a lot better in my portfolio growth. It's not that I have to choose one or the other, but it's good to know what will contribute to a greater extent to my portfolio growth so that I know what is the most effective way to grow it."

yeh said...

LP is 大爷,SMOL is 大叔。 uncle CW is 老爷。

la papillion said...

Hi Rolf,

Well, I think that son will face his own set of lessons for starting up a fund from other people's money! Haha :) This kind of lessons should be different from those starting from scratch. I guess we all have our own set of lessons to learn from our own circumstances.

I think in the past I'll be quite envious..these days, 'see open' already lol

la papillion said...

Hi SMK,

Thanks man :)

la papillion said...

Hi Yeh,

Hahah! Thanks thanks, LP大爷 has a nice ring to it :)

temperament said...

Ha! Ha!
i don't really know what i do all these years.
i suppose i do all that is possible.
From injecting saving to organic growth of portfolio.
You can say i Rojak lol!

temperament said...

Don't be mistaken, almost zero leverage.
Don't know how to make use of DEBT.
In fact very afraid to owe Bank's money.
Anyway Banks are very afraid of lending to me too.
No assets lah.