Think of your all financial assets as a pyramid. How do you ensure your pyramid doesn't topple when a major crisis comes?
A Strong Foundation
You need a strong base. A solid foundation that can withstand any financial tsunami. The broader the base, the safer you are.
You also need the cash when there's blood (fire sale) on the streets. Dump your cash in and scoop up shares at great discounts.
You can adjust this base on personal preference, but currently I am about 70% in cash for 2 reasons:
1. Feel that the market is heading into over-valued terriority.
2. Still new to investing to take too much risks.
Income, The Core
Income stock forms the next layer, and can also be a very safe bet depending on what you buy.
I would say the majority of investments I have made so far are income stocks.
Frasers Centrepoint, Sembcorp Utilities... These are companies that is unlikely to just "die off", and will continue to provide passive income in bad times.
The strategy is to pump cash into income stocks. Income stocks generate cash, which you can use to buy more income stocks!
Basically, it is:
Cash -> Buy Income Stocks -> Dividends -> Buy More Income Stocks -> More Dividends.
Growth
In the upper layer are growth stocks. They are usually higher in price earnings, and doesn't give out much dividends. The upside is they have lots of growth potential that can turn into huge winners, multiplying your intial investments several times.
The downside is that they are usually not "giant blue chips", thus making them "less safe".
I am not really good at spotting growth stocks, so I buy them sparingly.
Speculation
These are basically all sorts of gambling.
Penny stocks, short-term trading, even buying Toto or going to the casino counts as speculative acts.
Stay away unless you have the cash.
AK advocate not allocating more than 1 year of your passive income in speculative stocks. You never want to crash badly here and never recover.
No comments:
Post a Comment