Building Your Own $1 Million Portfolio

Almost everyone one of us can take photos, if we want to. But can we really call ourselves photographers?

Obviously some people can. They clearly have the knack to frame an almost perfect snapshot, even if they might be using something as basic as the built-in camera on a handphone.

But good photos don’t happen by chance, as I discovered at a talk by accomplished Singapore photojournalist, Sim Chi Yin. The talk was held as part of the World Press Photo 2015 exhibition at the National Museum of Singapore.

What to shoot?

Chi Yin pointed out: “Taking a picture is easy…the hard work comes from figuring out what to shoot.

There are some interesting parallels between taking good, professional photos and successful investing.

Investing in companies is easy. It has been made even simpler today with the proliferation of online trading platforms.

So, buying a share today is really no harder than, say, taking a picture. With the click of a button, we can choose from any one of over 700 stocks in the Singapore market to add to our portfolios.

What to buy?

Beyond Singapore, there are literally thousands of other stocks that we can buy too.

That is the easy part. The hard part, though, is figuring out what to buy.

But some of us might be tempted to buy just about everything under the Sun, without first figuring out why it might make sense to do so.

Legendary investor Philip Fisher once said: “Usually a very long list of securities is not a sign of the brilliant investor, but of one who is unsure of himself.”

Warren Buffett said something similar. He quipped: “We think diversification, as practiced generally, makes very little sense for anyone who knows what they are doing. Diversification serves as protection against ignorance.”

But the pithiest piece of advice probably comes from Peter Lynch. He said: “Distrust diversifications, which usually turn out to be diworseifications.”

How long have you got?

So, when we invest we should try to work out where we are – from a financial perspective – today, and where we would like to be some time in the future.

Those two separate points on our time-line is crucial in determining the path we need to take to achieve our financial objectives.

I recall a friend once telling me that he eschewed investing in the stock market because he had found a better way to reach his financial goal. He invested all his resources in himself.

I should point out that my friend is a very talented media personality with a great gift of both the spoken and the written word. Consequently, he can almost command his own salary, based on his unique skill. So, investing in himself could make financial sense.

But most of us can’t. So we need to invest in assets – other than ourselves – to reach our financial objectives. That is not nearly as difficult as it sounds.

Tracking our wealth

In some instances, we can reach our goals simply by putting away – little and often – some of our spare cash into a stock market index tracker, such as an Exchange Traded Fund.

The STI ETF (SGX: ES3), for instance, has delivered a total return of around 6.8% since its inception in April 2002. Simply adding S$200 every month to the fund over the last 13 years would have turned the S$31,200 invested in the tracker into just over S$50,000.

If we assume the return could be maintained for another 37 years, then a financial goal of S$1 million could be not just a pipe dream but a calculated reality.

Snapping away

For some investors, an index tracker, which has delivered around 7% a year, might be enough. For others who might require a higher return, then selecting stocks that could beat the market might be a better option.

But whatever route we choose to take, it is crucial to figure out what to buy, whether it make sense to buy it and, importantly, how it might fit into our portfolios.

Simply snapping away at everything that comes along might seem productive. But we are more likely to end up with a lot of indistinct pictures of hands and feet. That is not investing…nor is it photography.

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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.