The Portfolio Multiverse is a concept in which an individual would plan, manage and organise his/her investment and trading portfolios based on each portfolio’s objective(s) and characteristics, and the individual’s risk appetite, risk tolerance, knowledge and allowable time for the portfolios, asset classes and/or financial instruments used in it (that is a mouthful, I must admit). This concept stemmed from my mental accounting bias and personally I felt it is easy to view one’s overall investment/trading picture.
Is it difficult to start off this Portfolio Multiverse? Not really. In fact, if you are a salaried person and have started out investing using your disposable income, you already have a Portfolio Multiverse in place. For common folks like you and me, we can start off our Portfolio Multiverse with three basic portfolios.
The Three Basic Portfolios
For most Singaporeans, the first basic portfolio to start with is their almost risk-free Central Provident Fund (CPF) accounts. Regardless of whether you tinker with it by investing, or just leave it as it is, the age to start withdrawing is known (from age 65, using the CPF Life model1), so there is a sort of rough gauge on how much you will be getting per month at a certain point of time. We can treat this as the basic retirement portfolio.
Then you can create an investment portfolio (e.g. The Bedokian Portfolio) using your disposable income to augment your CPF for retirement. Since the use of CPF is subjected to regulations, this portfolio is more flexible and liquid, and it can also be used to fulfill your financial objectives such as determining when to start collecting the yield as passive income or to fund foreseeable big ticket items like your child’s education.
If you still have spare cash, you may consider opening up a Supplementary Retirement Scheme (SRS) account2. You can save some taxes along the way while building up the SRS fund through investing. The uniqueness about SRS is that you are given up to 10 years to withdraw the amount3, and can start at or after the prevailing statutory retirement age when you first made the contribution (currently is age 62).
The Timeline Map
With these three basic portfolios, you can chart your financial plans and milestones using a timeline map. Each portfolio is assigned a timeline, and on each timeline you can indicate the objectives, milestones and payouts along the way; for example on the Bedokian Portfolio timeline, you can indicate that you want to have $100,000 by age 30 with a projected yield of 5%, by age 45 to withdraw $20,000 to fund your home re-renovation, and by age 55 you would want to commence drawdown at 3%, etc.
The timelines are not isolated from one another. They are supposed to work together to achieve your overall financial goals, especially at the retirement stage, at which you would have income streams from CPF, SRS and the Bedokian Portfolio. Furthermore, depending on what other timelines you might have and the prevailing regulations for CPF and SRS, the funds can be transferred among one another (e.g. allocate a portion of the dividends from your Bedokian Portfolio to top up your CPF or SRS).
Expanding The Portfolio Multiverse
As life goes on, and if more capital is available to you, you could either just add it into these three, or go for other portfolios, asset classes and financial instruments such as property or annuities (provided you have gained some knowledge on how to invest in them). There you can create additional timelines and further plan your financial path.
The Portfolio Multiverse concept is still a work-in-progress, but the main gist is described above.
In case you are interested, I have written some blog posts on how to implement The Bedokian Portfolio on your CPF and SRS portfolios (look them up at the references section below).
1 – Central Provident Fund Board. CPF Life. Last updated 23 July 2018. https://www.cpf.gov.sg/Members/Schemes/schemes/retirement/cpf-life (accessed 19 Aug 2018)
2 – Ministry of Finance. Supplementary Retirement Scheme. 7 Dec 2017. https://www.mof.gov.sg/Portals/0/mof%20for/individuals/SRS_Booklet%20-%207%20Dec%202017.pdf?ver=2017-12-07-105458-317 (accessed 19 Aug 2018)
3 – You need not withdraw everything after 10 years, but 50% of the remaining amount after that period would be subject to income tax.