I have a chat with a good friend of mine today and he has built up a sizable portfolio over 4 years from 2008. He focused on dividend-paying stocks or good FA stocks trading at a deep discount to NAV. I have to say that his strategy of 'not timing' the market and having the discipline to buy good FA stocks during good and bad times seemed to have worked well in his favor and we had an interesting discussion on passive income as we are both trying to build a stream of passive income.
The chart above shows the inflation rate in Singapore. Currently it is hovering at 4%. With interest rates in Singapore banks at less than 1%, our cash in the banks are "losing" at least 3% p.a.?! As such, if we don't find a better return for our cash, over a period of 10 to 20 years, our cash will become 'worth less'. Seems like putting our money in the bank is actually not "risk-free" as the value is depleting over the years.
I, for one, has been as guilty for the same. I have not been utilizing the cash in the most efficient manner. I am trying to do a projection of what my SRS portfolio will look like in year 2030. The basic assumption is as follows:
- I will fully invest the remaining cash in my SRS by end of this year.
- I will contribute $12,750 each year into the SRS portfolio and make investments.
- All interest received each year will be reinvested in the following year.
At the end of 2030, the total invested capital will be $312,375, however, the ending portfolio value will depend greatly on the yields which I manage to generate from the SRS portfolio and the sensitivity table is presented below .
As you can see, with the effect of compounding, the portfolio will look really nice if we can get an annualized return of between 8% to 10%. Well, you can bookmark this post and come back again in year 2030 to see the final portfolio value (if i am still blogging then). hahaha. If i don't do anything to the SRS cash, it will definitely give me a final portfolio value of less than $363,576. If i manage to achieve at least 5% p.a. yield on my portfolio, i could possibly get an ending portfolio value of $587,023 or more.
Here you go, some food for thoughts for the weekend.