Friday, June 26, 2020

Managing Your Passive Dividend Income

The Bedokian Portfolio’s mantra is “passive income through dividend and index investing”. During the portfolio building phase, staying the course of dividend and index investing (peppered with some growth and value styles if you deem fit) through the ups and downs of the markets is correct; some years you will get more, others you may get less. However, if you are presently at the passive income phase, and with down periods such as the ongoing COVID-19 situation, your dividend income stream will definitely be affected one way or another (assuming you have no other forms of income stream).


Though I have yet to reach the passive income stage, I have a plan in place to execute it. The plan involves knowing exactly how much you would have in the coming year, so in lean years like this, I would not be caught off guard. In other words, I need not worry on the lesser amounts of dividends I am getting this year, and I will be less worried next year because I knew how much I am going to have.


So, what is the secret? It is pretty simple actually. The dividends that you are getting this year is going to be your next year’s income.


To practice this, you would have to start on the day that you have decided to convert your portfolio into a passive income machine. Or, if you want to continue working, to step down from the rat race and do a job that you really like, without pressure. And no, that “day” is not going to be your last working day, but it is the day which you decide to quit in exactly one year’s time. In this 365-day (or 366-day if leap year) duration, your income is from work, while the dividends collected from your portfolio will form up your next year’s income (instead of going into the cash component of the portfolio). After the year is done, you quit and start to treat last year’s dividends as your current year’s pay, while this year’s dividends will be next year’s pay, and so on.


The main advantage here is that you will suffer less from income shock, since you knew how much you will be having. A year’s head start gives you ample time to plan ahead and decide if you should live lean (e.g. forego an overseas trip or a big purchase), drawdown further from your portfolio and/or take up some gig or job stint to cover the shortfall. On the investment front, if last year was a bumper crop and this year is down, you can make use of your last year’s enlarged dividends to buy undervalued securities in the bear market to enlarge your portfolio.


For those who had begun their dividend income journey, I believe you already have a plan in place and it could be working well for you. However, if you decide to shift to the method above, then the “work income” for the initial year may need to be drawn from your portfolio if you are currently not working or the work income is not enough to supplement it.


To formalize your dividend income further, you may want to implement the concept of a monthly pay by dividing the total amount by 12, treating it as a salary to be drawn every month. Since most of us are/were salaried employees, it could reinforce prudent spending and savings (and investing) that we were so used to, even if we are really not working.

Wednesday, June 17, 2020

Straits Times Index And Real Estate Investment Trusts

On 4 June 2020, FTSE Russell, Singapore Press Holdings (SPH) and Singapore Exchange (SGX) had announced in their quarterly review that Mapletree Industrial Trust had replaced SPH as a constituent of the Straits Times Index (STI)1. The changes will be applied after business hours on 19 June 2020 and will be effective on 22 June 2020. 


What caught my eye in the same article was the STI reserve list (the next-in-line substitutes should the current constituents are to be dropped in the next review), and out of five listed, four are real estate investment trusts (REITs). There were already five REITs in the STI, and with this impending change, there are going to be six.


For the Bedokian Portfolio, as well as the other investment portfolios, the STI served as the representative of the Singapore equities asset class. Depending on your school of thought on asset classes, some viewed REITs as a separate one due to physical properties being a standalone asset class, and REITs are a hybrid of physical properties with equities characteristics (a view that I am holding). There are others who viewed REITs as a subset or sector of equities and hence they are treated as such. Therefore, seeing the number of REITs on the STI reserve list, we may need to relook at how to position your Bedokian Portfolio if you view REITs as a separate component and use the STI only for equities.


The STI-REITs Overlap


Using data from the SPDR STI ETF, one of two ETFs listed in SGX that track the STI (for information, the other is the Nikko AM Singapore STI ETF), the weightage of REITs only (property sector companies are not included) is about 11.91%2. Factoring in the balanced Bedokian Portfolio (35% equities, 35% REITs, 20% bonds, 5% commodities and 5% cash) and extrapolating the 11.91%, a swing of 4.17% (35% x 0.1191) would favour REITs from equities, making it an equities-REITs ratio of 30.83% : 39.17%, and we have yet to add the incoming Mapletree Industrial Trust. This meant that inadvertently, your Bedokian Portfolio is overweight on REITs, even if you have equal portions of STI ETF and REITs (see Fig. 1).




With Singapore becoming a REITs hub and mergers happening (or happened) between REITs, this asset class (or sub asset class) will become a major ingredient in the STI recipe. The proposed merger of Capitaland Mall Trust and Capitaland Commercial Trust (both are in the STI) would create a vacancy in the index, and it is likely going to be another REIT coming in (assuming the reserve list remains the same). This may cause our portfolio balance to be lopsided much more to the REITs end.


It is OK if you choose to leave it as it is or if you agree on the viewpoint that REITs are equities. If not, there are two main ways on bringing the balance back:


#1: Buy More STI And Reduce The REITs


In order to mitigate the overlapping of REITs into equities as shown in Fig.1, a reverse overlap can be done as shown in Fig.2. To do this, we need to buy more STI ETF and less REITs until to the point where the actual weight is more or less equal with each other. This, to me, is the easiest for passive investors but there is the additional hassle of checking periodically the actual holdings of the STI ETF that you are invested in (whether the SPDR or the Nikko AM one) to see if the allocation is in sync or not.

Fig. 2


#2: Core-Satellite Approach


The concept of the core-satellite in the Bedokian Portfolio is where ETFs that represent the various asset classes form the core while individual securities form up the satellite. The inclusion of individual securities will dampen the overlap issue (see Fig. 3) since you can dictate the types of securities you can hold. Assuming your ratio for the core and satellite is 50:50, on the weightage level, the swing to REITs will be less pronounced at 2.08% (35%/2 x 0.1191), which is not so significant in affecting the equities-REITs balance. In this way you can continue to have that allocation or make some fine adjustments between the core and satellite numbers to manage the swing.


Fig. 3

If you are a passive investor and analysing companies is not your cup of tea, then you can replace the individual securities part with regional/country/sectoral ETFs instead, as long as they are under the equities category. There are tons of such ETFs available from the major stock exchanges in New York and London, and SGX has a variety, too.


Stay safe, stay invested and stay diversified.


1 – Straits Times Index (STI) quarterly review. FTSE Russell. 4 June 2020. (accessed 16 June 2020)


2 – SPDR Straits Times Index ETF. State Street Global Advisors SPDR. Month-End Holdings as at 31 May 2020. (accessed 16 June 2020)




Ground Rules. Straits Times Index v2.5. January 2020. (accessed 16 June 2020)


Zhen Hao, Toh. In Singapore, REITs Are Becoming More Important Than Ever. Bloomberg. 24 Feb 2020. (accessed 16 June 2020)


Wednesday, June 10, 2020

Bob And Staying Long Term

If you do not know Bob, he is our sample investor who started off passive investing through ETFs following the balanced Bedokian Portfolio allocation (35% equities, 35% REITs, 20% bonds, 5% commodities and 5% cash, see here) starting from 1 Jan 2017. He rebalances his portfolio every six months with SGD 5,000, usually at beginning January and end of June. After close to 3.5 years, as at 9 June 2020, his overall time weighted returns are at 13.11% (based on calculations from StocksCafe) to date.

We had seen the fall and subsequent rise of the equities’ and REITs’ prices between end February till now, and some of us may have entered during the lows of end March. Notwithstanding the concerns on the disconnect between the markets and the economy in general, you may have wondered if Bob had bought in during that down-down period, he would be getting a better bargain than at his scheduled upcoming rebalancing date of 30 Jun 2020. As an active investor, naturally I would have felt a sense of waste and opportunity cost imposed, but we know emotions are a no-no in the world of investing and trading, so we just looked back, sigh and moved on (I called this moment “the one that got away”, but honestly I did get some counters on the cheap during that period). 

For Bob, since he is only looking at his portfolio once in a while, I guess he may have other more pressing concerns during this time, such as worrying for his job, the safety and well-being of his family and coping with the isolation and boredom resulting from the circuit breaker measures. Of course, Bob might have heard from his social media channels and friends about the stock market, and the fear and opportunities that come with it. Probably he is just taking it in his stride and believe in the long term.

The Long Term

And this is precisely what I am going to talk about. Investing is meant for long term, and by my definition it is a period of at least 10 years. Ups and downs, peaks and troughs, are part and parcel of the market and economic cycles, and over the long term you are likely to get overall positive returns. During the timeframe of Jan 1994 to Dec 2019, using the balanced Bedokian Portfolio with U.S. based asset classes, a USD 10,000 investment, rebalanced annually, will return USD 50,145 (inflation adjusted). If we look at the 10-year rolling returns, it resulted in a range between 4.92% and 11.58%, with an average of 8.36%1.

Let us stretch a bit longer using only U.S. equities and 10-year treasury bonds (60%/40% respectively), from Jan 1972 to Dec 2019, an initial USD 10,000 (rebalanced annually) will return USD 130,424 (inflation adjusted) and the 10-year rolling returns were between 3.32% and 15.69%, averaging at 10.29%2. The figures were considered not bad, as there were a number of economic crises in those years besides the all-too-familiar Dot Com Bubble and the Global Financial Crisis (e.g. 1973 Oil Crisis, 1987 Black Monday crash, etc.).

When you look at the graphs and charts of equities, REITs or maybe bonds, first by the day, then by the week and the month, the peaks and valleys are pretty obvious, but if you continue to zoom out by a year, then five years and then ten, chances are you will see an upward slope, generally. This is what you want to achieve for your portfolio; the gain in price and value. These are made possible because of two important and simple factors: the inherent growth of the economy and the power of compounding. 

Using the world’s gross domestic product (GDP) as an indicator of economic growth, since 1961 till 2018, annually it had always been a positive percentage growth with the exception of 2009 (see Fig. 1)3. If this GDP is an investible financial instrument, you can see the compounding effect work over the years.

Fig.1 - World GDP growth (annual %), 1961 - 2018. Source: World Bank

Therefore, in investing, stay calm and long term, and be diversified.

1 – Statistics from Portfolio Visualizer (, using Backtest Asset Allocation. 35% US Stock Market (equities), 35% REITs, 20% Total U.S. Bond Market (bonds), 5% Gold (commodities), 5% cash. Starting year of 1994 was selected as it was the earliest year with REITs data.

2 – ibid. The U.S. Stock Market and the 10-year Treasury bond were selected for the equities and bond components respectively, since these two contained data from 1972, which was Portfolio Visualizer’s earliest data point year.

3 – GDP growth (annual %). The World Bank. (accessed 9 June 2020).

Friday, May 29, 2020

The Economic Machine Analogy, Dimension And Degree

I like to use the analogy of the economy as a huge, 3-dimensional machine with billions or trillions of parts working together, something like a complex system of gears and rods of various sizes moving it along. The parts are made up of anything and everything that is related to the economy; countries, industries, businesses, mom-and-pop shops and individuals like you and me. It can endure some kinks here and there, and the machine itself is dynamic whereby if some parts are damaged or gone, it will tune itself to suit the current situation. The economic machine would require one important item that enables it to run smoothly, and it is a lubricant called liquidity. The lubricant oils the machine at many different points, and in turn cascades down to other parts, like a champagne pyramid.

The global crash of 2008/2009 was a liquidity crisis, during which there was not enough lubricant to oil the entire machine, due to being leaked off somewhere (e.g. sub-prime bubble). The subsequent “friction” caused some parts to be damaged, and consequentially affected other parts, too, on a wide scale. The introduction of quantitative easing, reduction of interest rates and other fiscal and monetary measures brought the much-needed lubricant back to restart the machine engine.

In the COVID-19 situation, to put it simply, the machine had simply stopped due to the lack of demand and supply in some quarters, mostly attributed to guidelines and regulations of curbing the spread of the virus through lockdowns or other means. This stop is causing other parts to either slow down or halt, too, and if this scenario persists, it does not bode well for the machine. Governmental responses include the tested-and-tried lowering of interest rates, easing of credit crunches and loan payment deferments, payouts to affected individuals, etc. These initiatives are at least trying to make the parts move at its minimum acceptable speed. 

Dimension And Degree

I would like to introduce the concept of the double Ds and they are dimension and degree. It is a very useful framework especially if you are an active investor and adhere to the associative investing idea (mentioned here).

Dimension is the way on how and where you look at things, and sometimes they look different if you viewed them from different locations; e.g. the number ‘6’ looks like a ‘9’ if you stand the other side, and the scenery seen from your bus/car/train while going to work is not the same as the one when you are coming back home. If we equate the economic machine as a car, you can see the car doors from the side, not from the front, but you can see the headlights and the doors if you stand in between the front and side. Seeing things from different dimensions enables you to have different perspectives, and with them your decision making would be clearer.

Degree is how far you are looking at from the point of origin, and it is also important when you are looking at the markets and economy. Going back to the machine, if a part moves, others will move, too. However, the move does not go in a linear fashion, but instead all around as long as there are links in between (remember, it is a 3D machine). It is like tracing your family tree, where most people would just go up to their parents, then grandparents, and so on, in a line. A more thorough method is to branch out your other family members, like your uncles, aunts, cousins or even their in-laws. I understand that it is exhaustive to go that far and you may lose your focus, so stop at a level where it is deemed not to have an adverse impact on your original prospect.

Guesstimate, a term which I like to use in my analysis, is an estimated guess to “see” the future, using known information and knowledge at your disposal to have a sense of what are the possible outcomes. Using the dimension and degree context mentioned above, you can have a hunch on what would be the market direction and the state of the economy, and/or knowing the upcoming growth areas and trends, by imagining the movements of the machine parts and see how it goes from different angles. Though we cannot really tell what is in store for us, a guesstimate is much preferred over a wild stab-in-the-dark guess.

There are some tools on how to visualise all these dimensions and degrees, but first thing is to get some papers and pens or markers. Mind maps, SWOT (Strengths, Weaknesses, Opportunities, Threats) matrices and Michael Porter’s Five Forces are some of the tools you can use, along with thought processes such as lateral and contrarian thinking which might help to give fresh insights on your analysis. In all aspects, having an open mind is key.

Thursday, May 21, 2020

Investing My CPF With Endowus

This is an affiliated post with Endowus. All views, opinions and research expressed herewith are solely mine. The intended audience of this post is for individuals who are below 55 years old. Disclaimer applies.

Over the course of the past few years, I had achieved two of my personal financial milestones, and those were the clearance of my home mortgage loan and hitting my Central Provident Fund Special Account (CPF SA) to the full retirement sum (FRS). The next step in my overall (read: lifetime) financial strategy would be maximising my gains and returns in the CPF Ordinary Account (OA).

We all know that the CPF OA returns an interest rate of 2.5% per year (and 3.5% per annum for the first SGD 20,000), but if we are able to invest with a diversified portfolio in the financial markets, we are likely to get higher returns over the course of 10 years, which is my bare minimum for an investment period. For instance, even considering the recent fall of the markets due to COVID-19, the balanced Bedokian Portfolio using U.S. based securities for the 10-year period of 1 May 2010 to 30 April 2020 would have an inflation adjusted compound annual growth rate (CAGR) of 6.3%1. Even for the basic 60% equities / 40% bonds portfolio in the same timeframe returned an inflation adjusted CAGR of 6.77%2.

I had started implementing my Bedokian Portfolio with the CPF OA (you can read up on how to do it here: Part 1 and Part 2), but there are limits imposed on the investable amount for shares (35%) and gold (10%). Though Exchange Traded Funds (ETFs) are not part of the abovementioned limits (with the exception of the SPDR Gold ETF), you can only choose from (currently) four, all of which are focused on the Singapore market. Therefore, to invest my CPF OA in overseas markets, I would have to look for another financial instrument. 

This is where unit trusts come into the picture (I understand that there are investment-linked insurance products, or ILPs, that has unit trusts, too, but I want to keep this post purely investment-related). They are professionally managed products and have a wide range of exposures ranging from asset classes to regions and individual countries. Although I am not against unit trusts (they are good investment vehicles in some cases), the major gripe I have with them is their high total expense ratios (TER) (as compared with ETFs). On top of the annual management fee (mostly around the range of 1.5% and above for equity unit trusts, based on the list here), there is still the one-time initial charge or front end load fee.

Enter Endowus

About eight to nine months ago, I stumbled upon Endowus on the Internet, and I believe they were (and still are) the only robo-advisory platform that can invest your CPF monies (they can invest in your cash and Supplementary Retirement Scheme savings, too). Through their selected funds (CPF approved, of course), I am able to invest my CPF OA in the international markets at a lower TER than if I had invested them myself, due to Endowus rebating 100% of the trailer fees. Being a robo-advisor, they could do a rebalance of the unit trust funds in the portfolio back to your desired allocation. For all these, Endowus charges an access fee of 0.4% of your assets under advice per year, quite a reasonable rate among all robo-advisors. 

With the above plus points, I decided to go for it by investing an initial SGD 10,000 with monthly injections from my CPF OA into the portfolio. 

My experience of setting up the Endowus account was pretty straightforward, but you need to have some information at hand, such as your CPF investment account (CPFIA) number. If you do not have this yet, go to either DBS, UOB or OCBC to open one (you can only have one CPFIA, no multiple accounts are allowed. Please read up on the prevailing charges and fees from each bank before settling on one). Also, an account with UOB Kay Hian will be opened, as the funds purchased under the Endowus platform are transacted by and custodised with them, in your own name. For my case, I used my UOB Kay Hian brokerage account number during the registration.

After the Endowus account had been set up, you are ready to go. The platform will ask for your investment goal (“general wealth accumulation”, “my retirement (coming soon)” and “a significant purchase (coming soon)”), risk tolerance for the goal (“preserve my capital”, “grow my capital by taking some risk” and “maximise my returns by taking greater risk”) via dropdown menus, and a slider for “worst 12-month percentage loss I can tolerate for my investment” for the latter. 

I chose my investment goal as “general wealth accumulation”, risk tolerance of “grow my capital by taking some risk” with 35% percentage loss tolerance, and I was recommended a 60%/40% equity/bond portfolio with the following funds, their focus (condensed from Endowus website) and their portion in percentage:

Equity Portfolio (60%)
  • Lion Global Infinity U.S. 500 Stock Index Fund: The U.S. S&P 500 index. This is a feeder fund to the Vanguard U.S. 500 Stock Index Fund (24%).
  • Natixis Harris Associates Global Equity Fund: Invests in companies whose shares are trading at a substantial discount to its intrinsic value (18%).
  • Schroder Global Emerging Market Opportunities Fund: Invests in companies especially from emerging markets such as China, Korea, Brazil, etc (9%).
  • First State Dividend Advantage Fund: Focused on Asia ex-Japan based companies that have potential dividend growth and long-term capital appreciation (9%).

Bond Funds (40%)
  • Legg Mason Western Asset Global Bond Trust: Primarily on high quality debt securities from Singapore and major global bond markets such as G10 countries, and Australia and New Zealand (16%). 
  • UOB United SGD Fund: Money market and short-term interest-bearing debt instruments and bank deposits, majority from China and Singapore (12%).
  • Eastspring Investments Singapore Select Bond Fund: Consisted of Singapore government, quasi-government and investment-grade debt securities from outside Singapore (12%).

The funds are well diversified, besides the obvious diversification of asset classes; there are regional (U.S., Asia-Pacific), state of the economy (developed, emerging), investment style (value investing and growth) and the type of fixed income (short-term, investment grade, etc.).

My Experiences So Far

Overall it is a seamless experience, but that is what robo-advisors are all about; you just contribute the amount needed and they will do the selecting, transacting and rebalancing automatically. If you want to make some changes (e.g. changing the monthly contribution), you can do it on their platform, which to me it is easily navigable and user friendly. You will be informed via email a few days before the scheduled deduction from your CPF OA for the monthly investment, and when the investment is done.

More on the user interface, you can view the breakdown of the equity and bond sector allocations and their top 10 holdings, something like what you see on a unit trust fact sheet, the difference being this information are from all of the underlying funds in your Endowus portfolio, not just one. I also find the interactive goal projection chart interesting as it showed, based on their simulations, the range of possible outcomes for your portfolio. 

Conclusion And Caveat

Before jumping in on the CPF investment bandwagon, you will need to do a self-review of your CPF commitments, if any. A lot of people used CPF OA for their home mortgage payments, and some for funding their children’s education. Being also one of your major retirement schemes, you have to consider if you are able to hit the future basic retirement sum (BRS), FRS or enhanced retirement sum (ERS) to facilitate the eventual CPF-Life payouts. It is important to note that investment is long term (at least 10 years in my definition), so do plan ahead carefully and know what you want.

Past performances of the funds stated in this post do not guarantee future results.

Click on this link and get SGD 10,000 managed free for six months (SGD 20 equivalent). 

All proceeds gathered from the affiliation will be donated to charity.

1 – Portfolio Visualizer ( Backtest Portfolio Asset Allocation. Balanced Bedokian Portfolio of 35% equities, 35% REITs, 20% bonds, 5% commodities and 5% cash using their representation counters VTI, BND, VNQ, GLD and CASHX respectively (accessed 20 May 2020).

2 – ibid. 60/40 equity/bond portfolio using VTI and BND respectively (accessed 20 May 2020).


Investment Products Included Under CPF Investment Scheme (CPFIS). Jan 2020. (accessed 20 May 2020)

Thursday, April 23, 2020

The Oil Conun-Drum

By now, you may have heard of the news of crude oil prices plunging to the negative regions (minus 37.63 US dollars (USD) per barrel, from this news source) due to the drop for its demand in the current COVID-19 situation. 

Before assuming that free oil is around the corner (hurrah for vehicle owners), the crude oil market is not as simple as it looks. First, if you read carefully from the same news article, the negative price is for the West Texas Intermediate (WTI) May 2020 futures contract, which had just expired on Tuesday (21st April 2020). The WTI June 2020 futures contract as at the time of my writing was USD 14.57. Oil, being a commodity, is mainly traded through futures, which I had explained the mechanism of it in my ebook1. Because of oil’s low demand, very little buyers would want to take delivery on the batch of WTI crude oil associated with the May 2020 contract, and the producers would instead have to pay the buyers to get it from them, if any.

Second, there are many other crude oil types traded in the market, not just WTI. The other oft-traded crude oil is the Brent, which was at USD 20.58 as at the time of my writing, and it is extracted from the North Sea between the United Kingdom and Norway. There are many others, like Dubai Crude from Dubai, Bonny Light from Nigeria, etc., hence there is no universal crude oil price.

Third, even if a barrel of oil is at the negative price region, there are costs incurred in storing, refining and delivering before it reaches the end user, which brings the price back to the positive region (so no more hurrah for vehicle owners). On a side note, a lot of companies are involved in this whole process chain, and by sectoral association, most of their profit margins may be affected with the low oil price.

So Why Talk About Oil?

Crude oil is one of the three items that I had stated in the ebook2 for the commodities portion of the Bedokian Portfolio. Investing in oil is a bit tricky; Unlike the other two commodities, which are gold and silver, there is no convenient way of holding physical crude oil (unless you have a large tanker ship or own a regulated oil storage facility). Although investing in oil related companies is one common way, I would not recommend it as they are still companies at heart, i.e. equities, and profit margins, expenses, productivity, etc. varies across them, even if the price of oil is the same. Another way is to go the oil futures path, but if you are not familiar with this instrument then I suggest you steer clear from it.

There are exchange traded funds (ETFs) for crude oil, but unlike its commodity siblings gold and silver, which have the actual physical assets backing them, their holdings are consisted of oil futures. With this characteristic, the prices of oil ETFs do not really correspond the actual rate of increase or decrease on the item that they cover (e.g. the price of spot oil may have gone up by 10%, but the ETF price may be only up by 3%). This is due to the result of contango3, which is existent in futures market.

Having stated the above, plus the points on oil in my ebook, it is up to you on whether to add oil into your portfolio, especially now the price had hit rock bottom. If you are not familiar with futures and the dynamics of the “black gold”, then you could just remain with gold and silver as your commodities.

Disclaimer: The Bedokian is vested in United States Brent Oil Fund (BNO).

1 – The Bedokian Portfolio, p37-39

2 – ibid, p42-43

3 – Chen, James. Contango. Investopedia. 20 Apr 2020. (accessed 23 Apr 2020) 

Monday, April 13, 2020

Of Emergency Fund And Liquidation Of Portfolio (To Tide Things Over)

A global recession is in the works; Due to the disruptions caused by the measures (e.g. lockdowns) in response to the COVID-19 pandemic, the global economic machine has slowed down tremendously. Unless a quick relief, like a vaccine or falling rates of infection, takes place, a longer delay may result in irreversible changes, as businesses may not sustain the fixed overheads despite grants, force majeure of loans and contracts, and macroeconomic stimulus being rolled out. The entire global economy, like a huge machine, is made up of different parts (countries, sectors, industries, companies, etc.) that are interdependent on one another. A stop in certain parts of the machine will cause others to slow down, and a prolonged halt may cause the whole thing to be damaged.

With this, individuals like you and me not only being preoccupied of keeping one’s family safe from the pandemic, but also keeping them sustained with a constant flow of income. In such times, for most of us, our primary sources of income, which are employment and/or business/profession, could be threatened, in terms of a huge reduction or worst case, a total cut-off. Even if we have secondary sources of income such as from investment portfolio and/or properties, these, too, are likely to suffer a cut as almost everyone and everything around are facing the same issue.

There are a few ways to mitigate this predicament, such as adjusting the lifestyle and cutting down on unnecessary expenses, look out for some side gigs to tide things over, and/or use your network built over the years to gain some opportunities. For this post, I will take on the investment portfolio side of things and most of the points here are related to what I had in my eBook.

The Emergency Fund

The emergency fund, by definition in my eBook, is for you to tide over unexpected situations in life, such as sickness, unemployment or just about anything that will eat into your money1. I had also mentioned here that the emergency fund is separate from your savings. There is no agreed upon quantum as it depends on your income, expenses and number of dependents.

I had recommended that the emergency fund be built before starting any investment, as this amount is treated as a buffer between your daily monies and the investment pool. If a drawdown has to be done, do it from the emergency fund first. 

The Cash Component

Depending on the size of the emergency fund, it should last at least a month or two and hopefully the COVID-19 would be controlled or optimistically be gone by then. However, if it does not abate, and if there are not many or ineffective alternative income streams, then the painful decision of drawing from the investment portfolio is to be made.

If you are following the Bedokian Portfolio’s methodology or any others of having a cash component in the portfolio, then shift that amount back into your emergency fund.

Partial Liquidation Of The Portfolio

If the conditions, be it the COVID-19 or your other income streams do not improve by the time your cash component is used up, then the liquidation of your investment portfolio is inevitable. Frankly speaking, by this time the portfolio would have shrank and the equities and REITs asset classes would have been hit the hardest.

The next question will be what to liquidate first? For this, my opinion is to firstly suspend the notion of asset class allocation and diversification temporarily. Secondly, see which asset class(es) the market is flocking to (note: capital moves between those that provide the greatest returns during boom days and the greatest safety during bust days), and liquidate that off, which in this case government bonds and commodities (especially gold and silver) are the probable ones.

For individual securities, you could use the selling triggers2 in the eBook as an initial screener, then conduct a full fundamental analysis before deciding if the counter is to be kept or sold off. At this stage you must be objective and keep your emotions in check; never mind the losses incurred or harping on the efforts in building up the portfolio. Live today, fight tomorrow. Once the whole thing blows over, set a time and conduct a full rebalance of your battered portfolio to the preferred asset class allocation.

Stay safe, stay liquid and stay invested.

1 – The Bedokian Portfolio, p64-65
2 – ibid, p101-103