(Snap shot of my 360k portfolio invested funds from my trading platform)
Am I being unrealistic?
To be honest, I could possibly set an impossible target judging from current circumstances, as most people think. However, to put things in perspective, perhaps there is a way (at least theoretically) to meet the target.As a portion of my portfolio consists of CPF stocks as well, the following calculations will be based on CPF investment returns and reinvestments.
Considering I earn $80k per annum now. I spent approximately $24K a year, or $2000 monthly. I have a remaining $56k for investment.
My dividend income amounts roughly $20k a year. Thus, I have about $76k for investment. To be conservative, I put the figure to be $66k. Hence I have $10k for CPF contributions to Medisave and Special account and other off budget spending, that cannot be invested.
Assume it is year 0 on Dec 2009.
Hence from year 1 to year 6, I have $66k for investment into my $350k portfolio every year, till 2015.
Question 1: What is the annual compounded rate of return do I need for my portfolio to hit my target of $1M by 2015? ($66k invested in year 1, compounded annually (7.1%) for 6 years will have a value of $99.6k in year 6)
To attain this figure it means that I reinvest $20k dividends and at least $46k cash (and CPF) into my portfolio.
My assumptions for the above calculation are as follows:
I have the discipline to reinvest at least $66k (CPF+CASH+DIVIDENDS) into my portfolio from year 1 day 1.
My salary increment is stagnant from 2010. (It is in fact going to be higher, if I stay on my current line).
I do not experience catastrophic financial events (again) that would wipe out my portfolio and bring it back to starting point. (No snakes and ladders game again please, I got a weak heart)
Question 2: Assuming I have the discipline, but due to my limited ability returns yield only 5.5% compounded return. (i) How much will I have at the end of year 6? (ii) How long will it take to hit my target of $1M?
Answer: (i) $937k at the end of year 6 (shortage of $63k); (ii) 6.54 years (takes roughly 6 months longer)
Not a bad plan actually! My current portfolio is giving a decent dividend yield of $20k per year, consider I have bought ARA, Suntec, Fortune Reit, SGX, HL Finance, Starhub over this year. My trading income has also given me a decent return. Hence, at least for this year, I would earn a minimum of $20k dividends (and trading income).
The good thing is that I only need to set aside $66k per year to reinvest into my existing portfolio. My dividend income and pay will rise and I will be able to enjoy a higher standard of living. Hence I do not assume that inflation is non-existent and standard of living remains constant. In fact, I may be able to get married and still achieve this target!
Question 3: However, consider my
This is probably the most difficult question to answer. If I assume that STI returns an average of 7.1% from year 1 to year 6, this means that it will have to rise from 2700 points to 4074 points from 2010 Jan to 2015 Dec!
However, as my strategy (philosophy) here is biased towards dividend income investing, I would only need to invest in stocks that pay 5.5% dividend yield and 1.6% capital appreciation annually. Hence, STI may hover at the region of 3500 points in 2015, but my portfolio may have already exceeded $1M.
Hence, I do think that having a million dollars in 6 years time is (remotely) attainable.
That said, we often plan with caution, execute with confidence and the rest is up to fate. I am 35% done with the journey. Please follow me through.
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