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How You Can Affect Your Portfolio’s Returns

In a typical conversation discussing investing, most people tend to talk about what companies to invest in, or the opportunities available in a particular industry or area. Not many talk about capital allocation. Yet, your returns can have a dramatic effect from how you allocate your capital.

Let us do a little experiment. Imagine you have invested in these 5 companies in the past decade:

1)      Singapore Airlines Ltd. (SGX: C6L)

2)      Neptune Orient Lines Ltd. (SGX: N03)

3)      Genting Singapore PLC (SGX: G13)

4)      CapitaLand Limited (SGX: C31)

5)      Sembcorp Marine Ltd (SGX: S51)

Not including their dividends, the returns of these five companies for the past decade are as follows;

  Capital Gain
Singapore Airlines Ltd. (SGX: C6L) -49.32%
Neptune Orient Lines Ltd. (SGX: N03) -14.28%
Genting Singapore PLC (SGX: G13) 550%
CapitaLand Limited (SGX: C31) 122.62%
Sembcorp Marine Ltd (SGX: S51) 466.50%
Average 215.10%

 If we have invested an equal amount across the five companies, we would have obtained a total return of 215% for the past decade. That means that if you have invested S$1000 in each of the company, your initial investment of S$5000 would have become S$15,755 by today.

However, if you have decided to invest twice as much money in Genting Singapore PLC than the rest of the companies, your initial investment of S$5000 would have become S$18,546 by today, an increase of 18%. Similarly, if you have invested twice the amount in Singapore Airlines instead, your initial investment of S$5000 would only become S$13,551 by today, a reduction of 14% from the original return.

Foolish Takeaway

Therefore, you can see, just by making a small change to your overall asset allocation decision, you can have returns that vary by a range of 32%. So the next time you decide on making an investment in a company, give some thought to the amount you would be investing in it in comparison to other investments. It might just make or break your overall portfolio.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.