I have been giving my portfolio some thoughts. Some time back, I have reviewed my portfolio:
Earnings report card (Part 1 of 2) (read here)
Slice and Dice my stock portfolio (read here)
I acknowledged that my portfolio has been heavily skewed towards Growth Stocks. Although I am generally happy with the strong fundamentals of most of these stocks / companies (less so for those bought much earlier), nevertheless I reckon there is space for more income stocks / investments in my portfolio.
I primarily do not search for high dividend stocks when I started out.. and dividend from stocks is only but one way of receiving passive income / cash flow, albeit a highly popular form (of passive income) from I have read in local financial blogs.
I do not rule out buying high dividend yield stocks (eg. REITS, Utility Stocks, Business Trust, Telcom stocks etc). In fact, recently I have been looking at AIMS AMP Capital Industrial REIT, FIRST REITS and Soilbuild Business Space REIT. With the recent drop in the market (and the bad economy sentiment), the share prices of a number of REITs have dropped. Nevertheless, the drop is not big (market slowly sliding)…
Having said that whatever investment into dividend stocks (in my portfolio) will be accumulated slowly. I do not foresee income stocks (high dividend yield stocks) to occupy a major position in my portfolio mix anytime soon. There are other factors which one need to consider before purchasing these stocks – the narratives and fundamental metrics. I am aware / wary of the high gearing ratio of these investment vehicles, and their use of private placement or right issues to raise capital. There are after all, pros and cons in owning REITS or other high dividend stocks. A high yield of 8% to 9% is possible.
As I have mentioned earlier, high dividend stocks is but one method to generate passive incomes (from paper assets). The other method I have read (from Rich Dad Poor Dad author Robert Kiyosaki) is from Selling Covered Call Options (read here). I did thought about opening an account with optionsXpress (maybe sometime in the future). Well, it is another sector to study.
Lastly, what I have been actively building up on for the past few months are P2P loans & Invoice Financing. These loans act like bonds (but is not as secure as quality Singapore Saving bonds or other retail bonds). The holding period is typically less than a year, and in most cases, for me personally, I do not invest large amount in any of these loans -capital is spread out over a no. of loans.
However, their yields are generally higher than dividend stocks. Simple interest of 13% to 15% per annum. And if you constantly reinvest the returns (returned capital and interest), you may achieve >20% annual yield.
For the generally passive investor like me, there appears to be always a constant need to go into the platforms and reinvest (in contrast to the “no action” for my stock portfolio).
This sector has been developing fast in Singapore and many more platforms have popped up. The rules are also changing fast. In the meantime, the P2P lending scene is largely unregulated by MAS.
MAS moves to promote financial technology (read here).
The take up rate has also increased – for example it is quite common to see a loan fully funded within the evening it was launched (tougher for me to invest nowadays). Even between platforms the competition for SMEs (seeking loans) are also hotting up. So much so, these platforms are reluctant to review too much details when they first introduce the loans (for fear that other platforms may poach the SMEs).
The use of invoice financing is also gaining popularity. Although the yields are lower but it is seemed as more secure (compared to typical P2P loans).
Invoice financing refers to the sale of accounts receivables by a company for immediate cash. It is a form of short-term financing often used to improve a company’s working capital position. Invoice financing is similar to short-term loans, although there are some differences.
The illustrate on the build up of P2P loans / Invoice Financing portion in my portfolio, below shows a comparison of just between the stocks vs P2P loans / Invoice Financing in my portfolio.
I have been using three P2P platforms, and have invested in 18 nos. of P2P loans / Invoice Financing so far. Just last year (2015), there were no P2P loans / Invoice Financing in my portfolio.
I think it would be inaccurate to make a comparison in the income percentage from my stock portfolio vs those from P2P loans / Invoice Financing at this stage. An annual comparison is more accurate. Most of the dividend would only come in the month of May anyway.
Well, don’t know how the income portion of my portfolio will pan out in the future. However, it is one small step for me, and hopefully a giant step in my passive income (for the years to come).
There will always be risk. I feel that instead of avoiding risk altogether, perhaps I should spend more time studying it and doing it (in baby steps) to learn more about it.
Shall leave you with this song.
“Risk comes from not knowing what you’re doing.” Warren Buffett
“The most successful people in life are the ones who ask questions. They’re always learning. They’re always growing. They’re always pushing.” Robert Kiyosaki
I am also exploring investing in P2P loans & invoice financing. May I know what are the 3 platforms that you use? How do you filter and choose the loans to participate in?
Hi, the 3 platforms I use is Funding Societies, Capital Match and Moolahsense.
You can check out my previous post here. In it, I listed out the various loans I have.
Basically I tried to do for positive and hopefully increasing profits and cash flow (within the last 3 years). Directors having assets such as landed properties or condominium, preferably under their name. Not having other loans or debts (however this may change after the loan is fully funded – as they can take up other loans). And yes DP credit should not be the worst. The companies should be in operation for a min. of 3 years (and profitable).
Also I try to avoid companies in the Oil & Gas or Construction. However I do have some loans by companies in the Construction sector as I felt that their financials look ok and I heard about these companies before.
For invoice financing, I mainly look for seller’s debtor being a MNC or government / Temasek linked company (so I know they would less likely conspire with the seller and has the financial means to pay). The financials of the invoice seller should be reasonably good – with good cash flow and min. debt, and some history of being in operation.
I signed up with the same 3 platforms too! I tried to sign up with invoice interchange too but they have stopped taking in new investors for now.
It seems that new opportunities do not come up very frequently or the new ones are very quickly fully funded.
Yup, now is the “Gold Rush” stage. Well occasionally there are bigger amount funds (with less reputable seller debtor or less creditable borrowers) left unfunded for a day or two.