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How To Brighten Up Our Portfolios

It was a sight to behold.

I was totally transfixed as I watched the walls of the Asian Civilisation Museum come to life with the colours of the rainbow.

Yes, I was lucky enough to catch the Singapore River Festival and the River Nights exhibitions at Clarke Quay one evening in October.

There was plenty to see and lots to marvel at.

But it was the dynamic light show that caught my attention most of all. I still have no idea how the artists managed to transform an otherwise static building into a lively and vibrant display of lights. But they did it supremely well.

Up in lights

As I watched the display, it dawned on me that there were some interesting similarities between the light show on the walls of the museum and our personal investment portfolios.

How often, I wonder, do we look at our portfolios and imagine what it could look like, if only there was a little more colour and a tad more excitement.

Time and again, we hear that we should always be comfortable with the choice of stocks that we put into our portfolios. That is a given.

But at the same time, our portfolios should also hold a sense of excitement. Not too much excitement, mind you – just enough to make it interesting.

Investing, in my view, should be fun. It should be fascinating enough to make us want to learn more about the many companies that are listed on the exchanges both here in Singapore and abroad too.

Safe and reliable

Of course, it goes without saying that we invest to make money. And some us might lean towards a portfolio of safe and reliable income shares that help us achieve that objective.

But we should also be confident enough in our investing capabilities to take a small step outside of our comfort zones.

I am, it has to be said, an unashamed income investor. In other words, I enjoy the sound of regular dividends hitting my bank account.

But I also know that a small dose of growth could make a world of difference to my overall returns. What’s more, one or two slightly more speculative shares could boost my returns significantly too, if I get it right.

Get the balance right

That said it is important to have the right balance of income, growth and speculative shares in our portfolios. The mix of the three types of stocks is far from prescriptive. It is not set in stone.

As a starting point, 60% income, 30% growth and 10% speculative could be a reasonable balance between the three different types of shares. So lots of income shares along the lines of  SingTel (SGX: Z74), StarHub (SGX: CC3) and the many Singapore REITs that pepper our market, fewer of the ilk of Raffles Medical (SGX: R01) and fewer still of the volatile small caps, could be the order of the day.

But younger investors might consider injecting more growth stocks into their portfolios, given that they could have a longer time horizon to ride out stock-market volatility.

Older investors, on the other hand, who might prefer predictability over excitement, could consider owning more income shares.

Age doesn’t matter

However, age should never be the sole or even the partial determinant.

There is nothing to say that older investors should always pack their portfolios to the rafters with income stocks. By the same token, there is nothing to say that younger investors should cram as much growth into their portfolios as possible.

It is also important to bear in mind that our portfolios could change over time. Something that might be suitable for us today might not be appropriate a few years down the line. Consequently, it is important to be flexible.

Peter Lynch once said: “In the long run, a portfolio of well-chosen stocks always outperform a portfolio of bonds or a money-market account.

The operative words are “well-chosen stocks”. If we want to beat the returns we get from a savings account at the bank, we need to choose our stocks carefully. That means knowing what you own, why you own it and how they fit into our portfolios.

A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

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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 Director David Kuo doesn’t own shares in any companies mentioned.